Taking the Tesla Roadster, the world’s most famous electric sports car, for a spin. (Photo credits: Monica Michelle)

The Tesla Roadster — at 0 to 60 mph in 3.9 seconds — is faster off the blocks than both the Ferrari F430 and the Lamborghini Gallardo. Oh, and it burns no oil.

The 2009 model is close to sold out, and it takes a $60,000 deposit to attempt to get one a year from now.

I have wanted — for a long time — to get in the cockpit of this curious machine and test its limits. Last week, Brian Lam of Gizmodo and I had a chance to do exactly that…

I was eager to compare it to the Audi R8 supercar I took for a aggressive run a few months ago.

The electric experiment did not disappoint.

The chassis weighs just 180 lbs. and looks no bigger than a cowhide rug.

The Tesla Roadster sounds like a fighter jet and accelerates like a drag motorcycle on steroids. Here are the videos and a few select shots (all the pictures, including interior, are here):

The Tesla hugs the curves and is LOW. I could touch my elbow to the asphalt from the driver’s seat.

If you have the cash and are prone to spending it on cars, the Tesla Roadster might just be the fix you’re looking for.

###

Odds and Ends: DonorsChoose Winners, Cool Tools, and More…

Need to make a website quickly? I just used Weebly:

I’m often asked what I use to create websites. Last week, I experimented with Weebly for the first time and was very pleased with the new Timothy Ferriss homepage, which was created in about 30 minutes. The natural search-engine optimization (SEO) is also impressive.

DonorsChoose winners (plus important note for all respondents):

Sincerest apologies for taking so long! Two things:

1) The 10 winners of $150 gift certificates for helping DonorsChoose get $500,000 in funding for US public school teachers on this post are:

-Jimflip - post begins “I clicked, I contacted…”
-Ben - post begins “Hey Tim, Ok, so I posted the note and URL…”
-Rachel - post begins “I tweeted (and got friends to tweet)…”
-Cody - post begins “Tim, your blog is quickly becoming…”
-C A Campbell - post begins “Done. Tweeted, on Facebook…”
-Chuck Lasker - post begins “Great post, Tim. Thanks. MySpace…”
-Andrew Kessler - post begins “I have added the link to both my business and personal Twitter…”
-Doc Kane - post begins “Hi Tim, Done, done, and done…”
-Chris Morin - post begins “I Buzzed & Dugg & Pownced…”
-Tim - post begins “Vote is in and counted…”

2) All of you who put up eligible comments before the deadline will get a $25 gift certificate to DonorsChoose, where you can help a local public school teacher. Please give me some time, but you’ll each get an email on this in the next few weeks. Thank you for participating and stepping up to make a difference!

Other fun items on the Internets:

Timothy Ferriss vs. David Allen: Productivity Guru Smackdown
Timothy Ferriss on Using a Viral Idea to Create a Best-seller: Publishing 2.0
What trouble is Tim getting into in real-time? Follow Timothy Ferriss on Twitter.

Who’s ready for the “most dangerous Bond ever filmed”? I’ve been waiting and waiting for this one.

Casino Royale was released on November 17, 2006. Nearly two years ago. For me, that’s when Bond was resurrected.

I’ve seen Casino Royale about 50 times. Yes, a wee bit crazy. I’m so psyched to see the new Bond movie, Quantum of Solace, that I’ve partnered with my friends at American Apparel to get a theater for all you readers and Bond fans out there…

I know not everyone will be able to make it, but please consider this a small Thanksgiving gesture to you all for being such awesome readers and making the last year one of the best of my life.

Here are the details and steps to take:

1) There are only 250 tickets available, one per person (bring photo ID)
2) The theater is in San Francisco
3) The password is “vesper” and you need to reserve your ticket here.
4) Read the event details carefully to make sure you get your ticket.
5) Rock hard at the Bond premiere this Friday with like-minded friends and go nuts.

Hope to see you there! Man, I’m not going to get much done this week…

P.S. I announced this in a tweet before the post went up. If these sell out and there are any extras (probably will be), I will also announce it on Twitter here.

Test driving the Tesla (more on that soon) and wearing my Happy Cat t-shirt on American Apparel. This Friday will be worthy of more happy cat.

(Photo: envisionpublicidad)

Many a false step was made by standing still.
-Fortune Cookie

Named must your fear be before banish it you can.
-Yoda, Star Wars: The Empire Strikes Back

RIO DE JANEIRO, BRAZIL

Twenty feet and closing.

"Run! Ruuuuuuuuuun!"� Hans didn't speak Portuguese, but the meaning was clear enough"”haul ass. His sneakers gripped firmly on the jagged rock, and he drove his chest forward towards 3,000 feet of nothing.

He held his breath on the final step, and the panic drove him to near unconsciousness. His vision blurred at the edges, closing to a single pin point of light, and then"¦ he floated. The all-consuming celestial blue of the horizon hit his visual field an instant after he realized that the thermal updraft had caught him and the wings of the paraglider. Fear was behind him on the mountain top, and thousands of feet above the resplendent green rain forest and pristine white beaches of Copacabana, Hans Keeling had seen the light.

That was Sunday.

On Monday, Hans returned to his law office in Century City, Los Angeles' posh corporate haven, and promptly handed in his three-week notice…

For nearly five years, he had faced his alarm clock with the same dread: I have to do this for another 40-45 years? He had once slept under his desk at the office after a punishing half-done project, only to wake up and continue on it the next morning. That same morning, he had made himself a promise: two more times and I'm out of here. Strike number three came the day before he left for his Brazilian vacation.

We all make these promises to ourselves, and Hans had done it before as well, but things were now somehow different. He was different. He had realized something while arcing in slow circles towards the earth"”risks weren't that scary once you took them. His colleagues told him what he expected to hear: he was throwing it all away. He was an attorney on his way to the top"”what the hell did he want?

Hans didn't know exactly what he wanted, but he had tasted it. On the other hand, he did know what bored him to tears, and he was done with it. No more passing days as the living dead, no more dinners where his colleagues compared cars, riding on the sugar high of a new BMW purchase until someone bought a more expensive Mercedes. It was over.

Immediately, a strange shift began"”Hans felt, for the first time in a long time, at peace with himself and what he was doing. He had always been terrified of plane turbulence, as if he might die with the best inside of him, but now he could fly through a violent storm sleeping like a baby. Strange indeed.

More than a year later, he was still getting unsolicited job offers from law firms but by then had started Nexus Surf, a premier surf-adventure company based in the tropical paradise of Florianopolis, Brazil. He had met his dream girl, a Carioca with caramel-colored skin named Tatiana [bottom right here], and spent most of his time relaxing under palm trees or treating clients to the best times of their lives.

Is this what he had been so afraid of?

These days, he often sees his former self in the under-joyed and overworked professionals he takes out on the waves. Waiting for the swell, the true emotions come out: "God, I wish I could do what you do."� His reply is always the same: "You can."�

The setting sun reflects off the surface of the water, providing a zen-like setting for a message he knows is true: it's not giving up to put your current path on indefinite pause. He could pick up his law career exactly where he left off if he wanted to, but that is the furthest thing from his mind.

As they paddle back to shore after an awesome session, his clients get a hold of themselves and regain their composure. They set foot on shore, and reality sinks its fangs in: "I would, but I can't really throw it all away."�

He has to laugh.

###

Excerpted from The 4-Hour Workweek, Chapter 3: Dodging Bullets - Fear-setting and Escaping Paralysis

Successful “investing” requires some uncommon questions. (Photo: Me at Burning Man ‘08)

“If the market felt fidgety, if people were scared or desperate, he [senior Salomon Brothers bond trader] herded them like sheep into a corner, then made them pay for their uncertainty.”
-Liar’s Poker, Chapter: A Brotherhood of Hoods

Connecticut, 2003

There were 4-6 screens per person, and chairs were lined up at a single 30-foot desk in hierarchical pecking order. Commands would come down the line and trades were made.

“Who the f*ck are you?” asked one of seniors, swiveling back to his glowing screens before I could answer.

It was my first time inside one of the largest investment banks on the planet, and I was just observing a friend in the hopes of learning something. Before I knew it, lunch had arrived and a 20-minute break was announced in a poetic slew of 4-letter words.

“Name a company.” It was a voice I didn’t recognize, but it was clearly directed at me.
“Uh… sorry. Excuse me?” I asked to the room and no one in particular.
“Name a company.”
“Uh…”
“Any company — doesn’t matter.”
“OK. Ah… Genentech.” It was a shot in the dark with no rhyme nor reason.
“F*ck Genentech!!!” came the chorus.

“OK, we just sold 100,000 shares of Genentech. F*ck those guys. Lost a ton on them last week.”

100,000 shares of Genentech sold because a no-nothing guest had pulled the name out of thin air.

That was my introduction to how truly rigged the stock market is…

Information Advantage

“One trader remembers that Lewie [head of Salomon Brothers' mortgage department] would say he thought the market was going up, and buy a hundred million [dollars' worth of] bonds. The market would start to go down. So Lewie would buy two billion more bonds, and of course, the market would then go up. After he had driven the market up, Lewie would turn to me and say, ‘See, I told you it was going to go up.’”
-Liar’s Poker, Chapter: The Fat Men and Their Marvelous Money Machine

I currently have less than 10% of my net-worth in stocks. Why? I don’t have an “information advantage”. If other words, I’ve seen the sharks in this ocean, and I want no part of it. They’ll eat my Barron’s-reading ass alive. I’d rather put my capital in angel investing and the few industries I understand, two areas where I have insider knowledge and connections that others don’t.

To quote billionaire Mark Cuban (great blog here) in his short interview with Young Money (YM) magazine:

YM: Do you have any general saving and investing advice for young people?

CUBAN: Put it in the bank. The idiots that tell you to put your money in the market because eventually it will go up need to tell you that because they are trying to sell you something. The stock market is probably the worst investment vehicle out there. If you won't put your money in the bank, NEVER put your money in something where you don't have an information advantage. Why invest your money in something because a broker told you to? If the broker had a clue, he/she wouldn't be a broker, they would be on a beach somewhere.

Here’s the deal — to beat the market consistently, you have to: 1) have better information than most people, 2) have superior analysis of the same information, or 3) have better luck than a Leprechaun.

Discarding luck as a strategem, and personally discarding better analysis because I don’t want to spend my life poring over annual reports or evaluating algorithms, there is a simple conclusion: don’t invest in anything that you don’t know inside and out better than most of the world.

From David Swensen, who ended 2007 up 28% as the investment manager of the Yale University endowment:

“You have to diversify against the collective ignorance… I think nobody is in a position to react to these big macro-issues. Where is the dollar going to be or what is G.D.P. growth going to be in China? For every smart person on one side of the question, there is another smart person on the other side."�

Having come out of Princeton and the land of Burton Malkiel, I agree with efficient market theory insomuch as “information advantage” is a prerequisite to consistently getting better returns than average.

If you don’t know something the rest don’t, don’t gamble.

Period.

The Weasel Word: “Investing”

In part 1 of this series, I promise my favorite picks for investing books. Though I’ve read several dozen based on recommendations from self-made millionaires (I try not to take advice from speculators), here are the few I’ve found most useful:

The Essays of Warren Buffett: Lessons for Corporate America (Buffett)
The Smartest Investment Book You’ll Ever Read (Solin)
Liar’s Poker (Lewis)
Seeking Wisdom: From Darwin to Munger (Bevelinl; Parts 2-4)
Less is More: An Anthology of Ancient and Modern Voices Raised in Praise of Simplicity (VandenBroeck)

What?! It seems like philosophical books have been mistakenly put on this list, no? Here’s the rub: after all the research and mind-numbing number crunching, I’ve decided that the philosophical decisions take precedent over the tactical ones. For me and those whose lives I most admire, at least.

One qualified commenter on the last investing post said:

“I don't think you're going to figure out investing in a matter of weeks or months.”

Well, this brings up an interesting question, doesn’t it. What the hell is “investing”, exactly?

If you have the potential to make 30% per annum in a given stock, but it keeps you up with sweaty palms at night, is that a good “investment”?

Is a stock with a projected 25% annual growth rate over 10 years a good “investment”, even though it will lose value every year except for one undetermined year with a 259% increase?

I sat in on another friend’s job once. He was a day trader, and his boss made more than $50,000 per day in most cases. But, this boss also carried divorce papers in his briefcase 24/7 “just in case he’d had it with the bitch.” Do you want his life? Is he a successful “investor”? Be careful with that term.

In the 100+ comments on the aforementioned post (some of the commenters manage 9-digit funds–hundreds of millions of dollars), definitions of “investing” range from “gambling” to “asset allocation.” In other words — “investing” as a term is so overused as to have become meaningless.

I propose that we define investment as a broad concept and then separate it out. First, the broad definition:

Investing = “Allocating resources to improve quality of life.”

This applies to financial investment as much as it does time management and all other resources. How much would your behavior and results change is you just replaced the concept of “time management” with “time investment” in your head?

Using this definition of investment, I would not chase the moving target of pure ROI (after all, there is always a more speculative vehicle with potential higher gains), but choose the vehicles that offers the greatest ROI with the least insomnia. More cash with constant sweat in the palms is hereby defined as a poor “investment.”

Moving from conceptual to tactical, we can also separate “investment” into three categories of actions, which I’ve found useful:

Investment =

-Asset/wealth creation
-Asset/wealth allocation
-Asset/wealth preservation

[To be continued...]

Did you miss Part 1 of the “rethinking investing” series? Read it here.

###

Odds and Ends: The Presidential Election

I’ll keep this short and sweet. Regardless of whom you’re voting for, get out and vote tomorrow, Tues. Find your closest location here.

If you care about your future and believe in a democratic process, it is your DUTY to get out and vote. I voted last week in San Jose, and — to be honest — I was not overwhelmed by the brain power I saw around me, all due respect to those who actually made the effort.

The best-informed people, for some reason, seem to sit on the sidelines playing armchair critic while elections happen. That’s bullsh*t.

This country is hanging on by a thread.

Make it a priority and vote on Tuesday. No excuses. Let the boss get a little pissed, let the co-worker whine for a few hours. Screw ‘em — they’ll get over it within 48 hours. The future of this country, and every person you know in it, is at stake. Gird up your loins (metaphorically) and get to your closest voting location.

Who am I voting for? Since the word got out last week, here it is: Barack Obama. I’m not an Obama maniac, and I don’t think he is a panacea. I think all politicians are liars — it’s in their job description to win public office. Either candidate will get more things wrong than right.

I actually agree with McCain on many issues, but this is an A-or-B choice. Despite some misgivings, I am certain Obama is far better than McCain for the long-term prospects of the US, and I know advisors to both candidates.

The minds I most respect, including people like Warren Buffett and Marc Andreessen (his reasons here) and those who will be taxed most under his administration, all support him. If you want to see a video where I explain some of the reasons, here it is. Disagree if you will, but make no mistake: I’ve done a lot of homework.

Here’s the point, though: I don’t care much who you vote for, despite my preference. But I do care that you vote.

Get out and make yourself heard. Find your closest voting location here. No excuses. What could be more important?

DonorsChoose winners:

I haven’t forgotten! Lots of good news coming soon on winners and even more winners…

Ah, lawyers. It’s a love-hate relationship.

Just this week alone, I’m working with a literary attorney (publishing), an entertainment attorney (TV), and a corporate financing attorney (angel investments).  All three are great.

Yesterday, though, I received the threatening letter below from Protocol Integrated Direct Marketing, whose call centers I recommend in the 4HWW. WTF?

Click to enlarge…

But what did I say about Protocol specifically? Here it is, after an group intro where I indicate providers can also be compensated per-minute:

“Protocol Marketing: One of classic sales-oriented call centers. I've used them for years.”

I used them as a start-up CEO and felt the recommendation was valuable to readers. Blasphemer! Even if a correction were needed somewhere, the legal bitch slap isn’t needed.

My response was simple: I called the lawyer and told him I would both have the mention removed and also announce the correction to readers (that’s this blog post).

I suspect the CEO, Don Norsworthy, is not aware of this letter, as he would have no doubt approached it differently. He would recognize a few things:

[Postscript: Don got in touch within 24 hours after this post and here's the scoop: the entire management team had been on an offsite while this transpired. When Don tracked down the e-mail thread resulting in this letter, none of the proper channels had been CC'd. He was a polite gentleman and even declined when I offered to publish a response on the blog, stating that he was calling to apologize, not to have anything published. It was precisely the best response from someone heading a $100-million+ per year operation.]

1. How you say something IS what you say.

Ever heard “it’s not just what you say, it’s how you say it”? I would go further: how you say something is what you say. A simple call or e-mail to Random House with “we’re getting too many calls for the wrong services; would you mind changing it to the following?” would have sufficed. Have a normal human conversation and don’t come off sounding like Robocop (video above).

But what if you need to be forceful? If someone’s motives are clearly bad? I’ve dealt with this as well. First of all, if their actions are done with obvious malevolent-intent or law-breaking, you can be more forceful. Second, for those cases that fall in the middle, it’s possible to be forceful and clear without being rude. For example:

“It’s come to our attention that [action your want them to cease in neutral terms]. I’m sure you are unaware, but this causes [negative consequences for you], which results in [other problems]. We thank you in advance for removing/stopping/correcting X as soon as possible [notice how less abrasive this is than 'immediately', but it achieves the same effect] and confirming when this has been done. Legal action is always a last resort, but if we do not receive confirmation within one business week, we’ll be compelled to take appropriate next steps. Your fastest correction and confirmation is both important and appreciated.”

2. It’s counterproductive to threaten someone until you determine their incentives to refuse compliance.

In other words, what do I gain by refusing to remove them? Nothing. In fact, it’s in my readers’ best interest to make it accurate or remove it. Threatening me with Darth Vader-speak like “compel compliance with [our] demand” just pisses people off, and I could have still been a strong proponent of theirs. Too bad, so sad.

3. It’s better to steer the golden goose rather than kill it.

If I’m sending them enough calls to “inundate” their phone lines (ironic in itself, since they’re offering call center services), it would be in their best interest to just make the description more accurate, no? It’s free advertising in a #1 NY Times bestseller to be published in 33 languages. How much advertising cost — or cost-per-acquisition (CPA) — does that save them if it’s accurate? Knowing the revenue model and having worked with call centers, I’d guess hundreds of thousands of dollars at a minimum. To save what? A few thousand dollars in filtering out mom-and-pop callers at $.90 per minute? That’s just penny-wise and pound-foolish.

4. Don’t mistake symptoms with root problems, or confuse correlation with causation.

There are no “income investment requirements” that I can find listed anywhere on their call center site. It strikes me that their main problem could relate to a system-wide issue with pre-qualification. The blurb in the 4HWW is just a symptom — any successful PR or marketing that brings people to them will produce the same filtering bottleneck. Fixing the root cause is better than threatening the person who makes the root cause come to the surface.

If they have a problem with “closer”, Protocol might also consider removing the following from the second paragraph of their main call center page:

Whether you need a salesperson to close deals or specialized technical support services, Protocol’s contact center services can help.

Confused? Me too.

5. If you threaten someone in a digital world, it might become what your prospective customers see first.

Principle one: Better not to threaten people whenever possible. Principle two: Google someone before you threaten them. If their PageRank and SEO beats yours, recognize that the public will see what they say first and foremost. Principle three: if someone is sending you business, and you threaten them because of a positive description (even containing inaccuracies), you are disincentivizing all partners, journalists, and customers from evangelizing for you if it becomes public. Given the new dynamics of personal branding in a digital age, being nice should be company policy, if not for cheap Google insurance.

Oh, and being rude sucks.

Be firm when necessary, but be nice whenever possible. Long-term, it doesn’t pay to do otherwise.

In conclusion: Protocol, I’m sorry for endorsing you and reflecting my experience in a positive description. I was wrong and you are right. Readers, please pull out your Sharpie and strike Protocol from pg. 201.

Ah, lawyers. Use them wisely or the problem you create could be bigger than the one you solve.

Anyone have suggestions for good call centers that won’t threaten me for recommending them?


To lighten the mood, a photo from the American Apparel factory, which I visited last Saturday. More pics here.

I first saw this video at the May 2nd, 2008 Berkshire Hathaway shareholder meeting. Prophetic and not to be missed.

I've learned quite a few things in the last 18 months of exploring"”and experimenting with"”the world of investing. This post is my first attempt to share the findings.

The lessons have come from not just reading books, but trial and error, and picking the brains of some diverse and fascinating people:

-Warren Buffett, the richest man in the world, and CFOs/financiers at Berkshire's portfolio companies
-Chief economists at top investments banks
-Dot-commers who have turned $40,000 into $2,000,000 in stocks using massive leverage
-Conservative entrepreneurs (still self-made millionaires) with all-bond portfolios
-Money managers of the ultra-rich and ridiculously famous
-Ivy league professors who not only trade options exclusively but also bet up to $500,000 per night as no-limit hold "˜em poker players.

In all cases, excluding blog reader feedback (how could I know?), the principles I will offer are from people who have made millions in their respective investments, not armchair quarterbacks (advisers) who take a management fee from the people willing to take real risks…

Total read time for this post: 6 minutes.

I've lost a little money, made more money (with "risk capital,"� about 28% annualized over the last three years), and preserved almost all of my money. I’m terrified of certain things, but I build my irrational decision-making and temporary stupidity into the planning.

To start, here is a snapshot of my total current asset allocation in retirement accounts. I'll come back to this. Notice the dates:

Let's start off with some smart observations from readers of this blog, who commented on my post where I described Warren Buffett's answer to my question, which recentlymade it into Berkshire’s new annual report! Here it is:

"If you were 30 years old and had no dependents but a full-time job that precluded full-time investing, how would you invest your first million dollars, assuming that you can cover 18 months of expenses with other savings? Thank you in advance for being as specific as possible with asset classes and allocation percentage."�

The observations I have picked out for discussion follow, and I’ve tested most of them. Some will sound complex, but this series will reduce it all to simple conclusions anyone can use:

From Lee:

For someone so risk seeking in your personal life, I'm surprised at your risk tolerance rate of 10%. From reading your blog, it seems like you live your life experiences with a 50% risk tolerance rate.

[Tim: This is a common misconception. I actually consider myself very conservative and risk-averse in both life and investment, and my close friends can confirm this. As we'll see, the phrase "risk tolerance" is hugely problematic, but behind the scenes, I micro-test the hell out of options to determine what has the best chance of a high return-on-investment (ROI), but this isn't transparent to most observers, who assume I regularly roll the dice and hope for the best. Not true.]

Patrick Clark [Tim: if you take nothing else from this post, re-read the bolded portion a few times and memorize it, especially the last sentence]:

I am going to make a few assumptions here:

1. You are an accredited investor.
2. Your businesses will continue to run themselves and create cash flow income for you.
3. This $1 million is true risk capital.

That being said, I am a investment advisor. I create portfolios for clients in both traditional asset classes (stocks, bonds, cash, and real estate) and non-traditional asset classes (raw materials, energy, metals, and currencies). This provides a mix of investments that are uncorrelated to one another.

Without getting into specific investment vehicles, an asset allocation will look something like this:

US Equities - 24.5%
International Equities - 19.5%
Real Estate - 3%
Raw Materials - 12%
Energy - 12.5%
Metals - 12%
Currencies - 6%
Cash - 10.5%

The goal is to produce an absolute return. For my clients, I am not interested in having the following conversation, "The market was down 40% this year, Mr. Jones, but we only lost 18%. We did a great job!"� No. A loss is a loss. By setting up a portfolio for absolute return, not relative returns, your chances of forwarding the ball every year is much greater.

Remember, a 50% loss requires a 100% gain to get back to even. Don't lose.

Luca:

cash IS an asset during bear market.

From D:

Find an investment style that fits your personality, then backtest that strategy [Tim: for those of you mathematically inclined, search for "Monte Carlo simulation"] over long & varied starting/ending periods to see if you can stomach the maximum drop ("�drawdown"�). And stick with it"¦forever. No one can predict the market, you never know if you're about to buy before a big dip.

It's true that growth stocks outperform a helluvalot of other asset classes over the long haul.

But, someone who put all their money in the S&P500 index on 1/3/2000 lost about -50% (by October 2002) and is still losing money eight years later! Most might throw in the towel at that low point, when they should have been adding. The pain of losing is alot stronger than the hope of winning.

Superstar investor via phone:

92% of your return is determined by asset allocation, 6% my manager/stock selection, and 2% by timing.

Russ Thornton:

Once your target allocation among the chosen funds had been determined, I would rebalance back to your target allocation when any single asset class deviated 20% from it's target. There is meaningful data supporting this rebalancing trigger. You could also rebalance with additional savings which is a much more tax efficient approach and will reduce your capital gains realization. Rebalancing forces you to buy more of the relatively less expensive asset class in a classic "buy low"� discipline [Tim: versus selling the higher-priced asset].

That's about it. Buy when you have money and only sell when you need the money, but not before.

Lee:

I like Taleb's idea of 90% in government bonds and 10% in highly speculative stocks.

More conventionally, I'd follow a highly diversified strategy as suggested by Swensen (Yale) in his books, adjusting the bond percentage up or down as dictated by risk tolerance:

stock funds:
large blend index (S&P 500)
small value index
International index
Real estate Index
Commodities (PIMCO real return)

bonds:
TIPs
Short term treasuries

Bex:

You can have a pretty diversified portfolio, even if you only own 10 stocks.

Henrik:

So basically, for the most stable returns, invest in a set of assets that do not go up or down at the same time. That means you need international as well as US exposure, and debt (bonds/money mkt) as well as stocks. [Tim: these are also called "negatively-correlating asset classes," common in pair trading, which Buffett did quite a lot in the 1970's and 80's]

Oliver:

Your allocation should be approximately as follows:

90% TIPS
10% Call options on the S&P500

This means you'll lose almost nothing if the market tanks but you'll still get a lot of the return of the S&P500 on the upside.

The first lesson is: you don't know what you think you know.

Think you can predict your risk tolerance? I bet you can't.

Let's try another question that will drive the point home:

Would you call yourself a racist? I bet you wouldn't, and I bet you are.

Take the Harvard Implicit Association Test (IAT) for race as many times as you like. I'm not a betting man, but I'll bet you come up as racist, regardless of race.

Surprising? Perhaps.

I've come to realize that the questions most investment advisers (and investors) ask are the wrong questions, or incomplete. Even if you have only $100 to invest, this is important to explore.

Most advice and decisions center on one question: what is your risk tolerance?

I had one wealth manager ask me this, and I answered honestly: "I have no idea."� It threw him off. I then asked him for the average of his clients' responses. The answer:

"Most answer that they would not panic, down up to 20% in one quarter."�

My follow-up question was: when do most panic and start selling low? His answer:

"When they're down 5% in one quarter."�

Unless you've lost 20% in a quarter, it's hard"”neigh, impossible"”to predict your response. It's not to dissimilar from a common boxing maxim: everyone has a plan until they get punched in the face.

False assumptions about your future decision making almost guarantees failure, so either 1) dial back your supposed "risk tolerance"�, or 2) simulate the loss with smaller amounts but higher risk investments before betting the farm. I use angel investments in tech start-ups for this purpose.

It need not be $100,000"”go to the horse track and make conservative bets (high-probability, low pay-out) at $25 a race until you lose $200 (FYI: here’s how I learned to bet on horses). How do you feel? That's the starting point: accurately gauging emotional responses to gain or loss.

Your decisions, and investment future, depend on calibrating accurately.

—

Continued in Part II, which includes best books, redefining “investment”, and more…

Suggestions for topics in this series? Please let me know in the comments. I still consider myself a novice and this is a work-in-progress. If investment advice, please give an example from your personal experience whenever possible. Real-life anecdotes are more interesting than opinions, though opinions can be helpful.

Suggested reading:

Picking Warren Buffett's Brain: Notes from a Novice
The Karmic Capitalist: Should I Wait Until I'm Rich to Give Back?
Lifestyle Investing: "Compound Time"� Like Compound Interest?

How do you skip the line and get the corner table? (photo: Thomas Hawk)

An evening out should be special, especially if it's an expensive evening.

But too often it's a disappointment. Does the following scenario sound familiar? After weeks of trying to score a reservation at that new restaurant that just got a great review, you finally get one "“ only to find yourself waiting until 9pm for the table you were promised at 8pm. When you're finally seated, you find yourself waiting "“ for a drink, for your food, for your check, even for your coat.

It might be somewhat tolerable if you looked around and saw that everyone was treated the same, but that's rarely the case.

There always seems to be at least one table getting the VIP treatment. It's like a little oasis: The diners aren't kept waiting; the waiters are particularly attentive; and the chef may even come out to say hello or send over some extra desserts at the end. Who doesn't want to be treated like that?

I'm not fussy and I'm not high maintenance. I think those are two reasons I stumbled upon the secrets of being treated like a VIP…

For years, I was editor in chief of a publishing house and edited cookbooks by some of the world's best chefs "“ so my friends always assumed that's why I got treated so well. But the truth is "“ the restaurants where I was treated best never knew what I did for a living. Trust me: If you get pitched books all day, the last thing you want is to be pitched books over dinner.

Here are 9 tips for becoming a VIP who skips lines and gets tables. Test even a few and you'll almost always get amazing treatment at the very restaurants others can barely get into.

1. Start at the bar. Try having a meal there. Chat with the bartender a bit; introduce yourself to the Maitre d' and get her or his card. Ask if the owner is around and introduce yourself to her or him.

2. Ask the waiter to ask the chef two questions: First, What does everyone order, and Second, what does almost no one order but the chef thinks everyone should. Then order them both. Chefs want to show off their popular dishes, but often have an item on the menu they are really proud of, and really want people to try. I first did this at The Slanted Door in San Francisco. A cook actually came out to say hello because he thought it was so unusual.

3. Be one of the first customers. If you read local food-blogs, or visit sites like chow.com or zagat.com, you'll know what's opening and who's opening it. If it sounds good, go. Businesses frame their first bucks and treasure their first customers.

4. If you like it, come back for two more meals that very week. I went to a great NYC restaurant called Union Pacific for lunch the week it opened. I loved it and came back for dinner that night, lunch the next day, and dinner later that week. They never forgot me. After Union Pacific became white hot, I could score a reservation any time I wanted "“ even if I hadn't been there for months. Even though the restaurant is sadly gone, I've kept up with some of the alums "“ and they now work in some of the city's best restaurants.

5. Be forgiving. Even VIPs sometimes have to wait, get spilled on, or get the wrong dish. VIPs are often simply people who were good sports when all didn't go as planned. You don't have to be a milquetoast "“ but if the restaurant knows it messed up, you can score major points by not making a big deal about it or using it as an excuse to try to score freebies.

6. Send compliments to the chef "“ especially when you are specific about what you like. I know it sounds dorky "“ but it's almost always appreciated. If you really love the place, send a note to the chef. Very few people do this.

7. Tip 25% if you like the place and got pretty good service. At very fancy restaurants, tip the Maitre d' too. If you can't afford to tip properly, then you can't afford that restaurant. Go someplace you can afford.

8. Choose the cheapest wine. Or choose a wine you know and like. Or one that intrigues you. Or just ask for help. But don't choose the second cheapest wine, unless it's a wine you know and like. (The cheapest is often a good, smart value; the second cheapest is sometimes a sucker's play "“ a bad deal put specifically on the wine list for all the people who don't know wine, don't want to ask, but don't want to look cheap by ordering the cheapest).

9. Ask to be treated like a VIP. Okay, I saved the most obvious for last. But it works. There's a restaurant called Matsuri in New York. I went and loved it. So I called the manager, told her that I was crazy about the place, and would entertain there a lot if I could be pretty sure that I would be nicely looked after. I've been treated like a prince there ever since. And I do entertain there whenever I can "“ both for business meals and with friends. There may be new restaurants cropping up all the time, but Matsuri is still one of NYC's best and has me for life.

—

About the author: Will Schwalbe is the former editor-in-chief of Hyperion Books, one of the powerhouses of New York publishing. He is, along with David Shipley of The New York Times, co-author of Send: Why People Email So Badly and How to Do It Better.

Is this a hedge fund manager? (photo: dannyhammontree)

I’m in the process of preparing a series of posts on the investment lessons I’ve learned in the last 18 months.

To preface the series with some humor (and insight), I thought one particular farewell letter would be appropriate. The author is hedge fund manager Andrew Lahde, who produced a one-year 866 percent return betting on the subprime mortgage collapse.

Today, he announced he was leaving the hedge fund business with a rather hysterical letter…

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde

Hat tip to Ryan Holiday for pointing me to the letter. More on rethinking investment soon.

###

Odds and Ends: You Rock!

Donorschoose got 2nd place ($500K) in the American Express competition by a very thin margin. Your votes made the difference and will impact more than 30,000 schoolchildren who need education the most. Remember this!

I hope each of you realize that your actions will make a life-changing difference for thousands who never would have otherwise had the opportunities good teaching (and enabled teachers) will provide. This is huge.

Have a wonderful weekend! All of you should be very proud of yourselves.

Take 10 seconds today to fill up your karmic bank account. (photo: woodleywonderworks)

Part 1 - The Favor and Bribe

This two-part post is interrelated, so I recommend you read both sections. If you take 10 seconds to do the first part, it should — based on the research — make you a happier person.

The first part is simple. I want to give ten of you $150. More on this a little later…

There are less than 7 hours left to help 100,000 public school students get $1.5 million dollars in much-needed funding for their educations. A single click here is all I ask of you, and I sweeten the pot with a bribe below…

First, from the woman who convinced me to put up this post:

Where you grow up shouldn't determine the quality of the education you receive. To help level the playing field, I propose giving 100,000 children in low-income communities the books, technology, and other materials that they need for a proper education.

The non-profit Donorschoose (who appear on the dedication page of 4HWW) only need 3,000-4,000 more votes to reach first place and receive $1.5 million dollars from American Express. As few as 500 more votes could lock them in for $500,000 (that means each vote is worth $1,000).

Earn some serious good karma and use this as your moment of Zen today.

You can make a difference in 100,000 lives with the click of a button. Please take these three simple steps to move from spectator to player in creating the world you want:

1. Vote here. If you don’t have an American Express Card, please forward this post to a friend and ask them to vote on your behalf.

2. Update your Facebook status, blog, twitter, e-mail or IM your friends either of these URLs:
http://www.membersproject.com/project/view/V8EWJV
http://snipurl.com/3zbdi (Same URL shortened)

A short message like this should do the trick:

“One click here today can give 100,000 students $1.5 million for education. No joke and no exaggeration. Take a second and earn some karma!”

The Bribe

Just do the following no later than midnight EST tonight:

1) Leave a comment on this post and tell me how you spread the word on the Donorschoose voting.

For bonus points:

2) Describe in the same comment which teacher, class, or school project had the biggest impact on your life and why.

Prize 1: Next Monday, I and several judges will pick the the 10 best comment give each person a $150 gift certificate to Donorschoose. The staff at Donorschoose can pick projects for you, if you’d like, and you’ll receive handwritten thank-you notes and photographs from every classroom you help. How cool is that?!

Prize 2: I will also invite the 10 winners to a private 30-60-minute call where you can ask me anything in the world that you like.

If you need some more solid reasons…

So why DonorsChoose?

Many non-profits sound great on paper and then fail in execution.

I've seen inside DonorsChoose, read their financials, and known the CEO for 15 years. They are streamlined like a Silicon Valley start-up, have helped more than 600,000 students with almost no resources, and they have superstars guiding them, including the Chairman and CEO of Sony Pictures, the founder of NetFlix, the co-founder of Yahoo, and Bill Bradley, among many others. Their corporate partners include Crate and Barrel and Yahoo. The Omidyar Foundation helped finance them. It goes on and on.

Why education?

Education is, after much research, what I believe has the greatest long-term potential to solve all of our problems: potable water, AIDS, malaria, racial discrimination, unfair trade agreements for developing countries, and all of the rest. DonorsChoose isn’t just about colored pencils — they've already directly helped in preventing teen pregnancies and getting future leaders out of low-income housing and on the path to college.

Adding people without adding the tools "” education and confidence "” can create more problems than it solves. Increased disease, famine, and war are just three examples. The US, for example, has no problem multiplying its population; it's training those people to get along and build a better future that's the challenge.

With $1.5 million, DonorsChoose can change the future of US education. I've seen them execute.

I don't expect them to get everyone's vote, but they get mine. Get involved and vote, whichever direction you go!

To reiterate:

Earn some serious good karma and use this as your moment of Zen today.

You can make a difference in tens of thousands of lives with the click of a button. Please take these three simple steps to move from spectator to player in creating the world you want:

1. Vote here. If you don’t have an American Express Card, please forward this post to a friend and ask them to vote on your behalf.

2. Update your Facebook status, blog, twitter, e-mail or IM your friends either of these URL:
http://www.membersproject.com/project/view/V8EWJV
http://snipurl.com/3zbdi (Same URL shortened)

A short message like this should do the trick:

“One click here today can give 100,000 students $1.5 million for education. No joke and no exaggeration. Take a second and earn some karma!”

Let us bring power to the people, but let us also recognize that power begins with one simple tool: education.

Arm the masses. Click here.

Part 2 - The Latest Happiness Research - How to Smile During an Economic Crash

Psychologist Martin Seligman came at “happiness” (a problematic term that nonetheless fascinates me) from an unusual source: he’d previously studied depression and learned helplessness.

I came across some of his latest findings — all scientifically verified — in the most recent issue of the Princeton Alumni Weekly:

There are three levels to happiness: pleasure, the delight you get from chocolate, fast cards, and sex; engagement, the feeling of “flow” you get when you’re doing something you’re good at; and meaning, the fulfillment you get from being engaged in an effort greater than yourself. Pleasure is ephemeral and contributes very little to real happiness… but meaningful engagement brings lasting contentment.

For classmates who are headed towards retirement, Seligman offers the following tip: “Material objects have almost no role in positive emotion. As you organize your retirement, spend it on meaningful engagement. Don’t squander your savings on boats and houses.”

It’s pretty simple, actually. Figure out what you’re good at. And then apply your strengths to a greater purpose. And don’t forget to cultivate optimism along the way.

More coming on investment soon…

I found Martin Eberhard, co-founder and former CEO of Tesla Motors, in the pages of 2600.

I was deep in the throes of palate nirvana at Stumptown Coffee in Portland (good coffee is not bitter) when I came across a curious article in 2600: The Hacker Quarterly.

Nursing the best dark brew I’ve ever had, I moved from a great article on free global phone calls to another on the language of gang signs, ultimately landing on a column signed not with an anonymous pseudonym but by Martin Eberhard, co-founder of Tesla Motors.

The subject? Engineering a “patriot hack” to protect privacy online. This, I remember thinking, should be interesting…

It was so interesting, in fact, that I reached out to Martin after my bear-rich Pacific Northwest roadtrip and asked for permission to reprint his article here. He graciously agreed.

This article is broken up into four sections, which I titled:

The Patriot Hack - From China’s Firewall to Lockpicking (15%)
The Political and Technical Landscape (60%)
Strategies to Protect Your Privacy (10%)
The “Haystack” Call to Action (15%)

If you want a quick read and aren’t interested in the political or legal aspects, just jump over the second section.

I hope you find this as thought-provoking — and practical — as I did.

The Patriot Hack - From China’s Firewall to Lockpicking

How long can the regime control what people are allowed to know, without the people caring enough to object? On current evidence, for quite a while.

So concludes James Fallows' article titled “Penetrating the Great Firewall” in the March '08 issue of The Atlantic. The Chinese firewall is a crude but effective system that looks at every single Internet connection in the country, and decides whether or not the user may proceed, based on policies set by the government. If a Chinese citizen looks too hard for information about, say, Tibetan independence, the Tiananmen Square massacre, or Falun Gong, not only might her search be blocked, she is also inviting a visit from the police.

An outrageous invasion of privacy, isn't it?

Reading Fallows' article immediately made me think about how to get around the Chinese firewall, and made me wonder how many people there already have. I guess it's the hacker instinct in me "“ I go straight from being outraged about the invasion of privacy to wondering how I might hack it if I had to.

I figured out how ordinary locks worked sometime in junior high school, and soon thereafter, I figured out how to pick these locks, how to make keys for them without fancy locksmith machines, and how to re-key locks my way. Soon thereafter, I discovered computers, which definitely were not personal in those days. I got kicked out of my 10th grade computer programming (Fortran) class for allegedly loading something into the school district's mainframe that brought the whole thing down. (No comment.) In those days, such security systems were challenges "“ picking the lock was an end to itself.

As I grew up, I channeled this energy into getting a decent engineering degree, then into becoming an entrepreneur. I guess you could say that Tesla Motors was my first try at hacking the global energy system.

The Political and Technical Landscape

Meanwhile we are busily transforming the “Land of the Free” into a high-tech surveillance society of our own. In the name of preventing terrorism in this post-9/11 world, we have come to accept the Patriot Act, video cameras watching us along highways and intersections, more video cameras in other public places, invasive airport screening, scrutinized financial transactions, widespread wiretaps, surveillance of our online activities, efforts to create national identity cards, face recognition equipment at sporting events, and lots more.

Alarmingly, we give up our privacy not just to protect ourselves from terrorists, but also for mundane convenience: "preference"� information gathered by online retailers, credit card usage data, ubiquitous RFID tags embedded in consumer goods, "club"� discount cards at supermarkets, deep personal information posted at social networking sites and then sold to marketers, open wireless networks, etc.

In this article I focus on the ocean of data collected about us by search engine companies.

We know that search engine companies collect and save massive amounts of information about our searches, but then again, search engines are so useful and convenient. They ostensibly use this information to tune the advertising that we get to see. We also know that many sites sell the data they collect to others. Who knows to what other ends these data are put? Some, such as Google says as a matter of policy that they will not be evil.

Unfortunately, your privacy is not a right that is clearly or specifically called out in the US Constitution. Some specific aspects of your privacy are protected, such as the privacy of your beliefs (in the 1st Amendment), privacy of your home against demands that it be used to house soldiers (in the 3rd Amendment), privacy of you and your possessions against unreasonable searches (in the 4th Amendment), and perhaps most importantly the 5th Amendment’s privilege against self-incrimination, which provides some protection for the privacy of your personal information.

Since about 1923, the US Supreme Court has interpreted the "liberty"� guarantee of the 14th Amendment to guarantee an increasingly broad right to privacy, and is the basis of most privacy protection outside those specifically listed. But the future of this constitutional privacy protection remains an open question. In our current Supreme Court, the so-called "originalists,"� like Justices Scalia and Thomas, are not inclined to protect your privacy beyond those plainly and specifically guaranteed in the Bill of Rights. (Supreme Court nominee Robert Bork has derided the right of privacy as "a loose cannon in the law."� Good thing he never made it onto the Court!)

Beyond constitutional protection, your privacy and the protection of your sensitive or personal information are protected somewhat by a patchwork of statutes on a per-industry basis. The Privacy Act of 1974 prevents the unauthorized disclosure of your personal information that is held by the federal government. The Fair Credit Reporting Act protects information about you that has been gathered by credit reporting agencies. The Children's Online Privacy Protection Act restricts what information about your children (age 13 and under) can be collected by web sites. The Sarbanes-Oxley Act, HIPAA and GLBA each contain some protection for some of your personal or confidential information. Some state laws also provide protection.

Since privacy is not specifically protected in the constitution, there will continue to be a battle between those of us who want our privacy protected and those who want to invade it "“ often our own government, certainly businesses who aggregate and sell our eyeballs, and worst of all, cooperation between the two.

Let's not forget most of the phone companies' gleeful cooperation with the US government's widespread warrantless wiretap program. You can bet that every service provider company "“ search engine companies included "“ is paying close attention to the immunity that Congress is right now granting to these phone companies for their illegal participation in this wiretapping program. [Note from Tim: I did a post on the practical implications of this and FISA here.]

What will happen when the government asks your favorite search engine company to divulge what you and I have searched for? This has happened already. So far, Google has resisted, but AOL and others did not. The World Privacy Forum notes:

"In 2006, AOL released about 20 million search queries of over 500,000 of its users. Those queries were put on the web. Reporters for the New York Times were able to identify a user from the search queries; others have also been able to identify users. In 2005, the U.S. Department of Justice subpoenaed Google, Yahoo, MSN, and AOL for tens of millions of users’ search queries. Google successfully fought the request, and was able to limit its disclosure, but it is unknown how much data other companies may have turned over."�

Although Ask.com has subsequently announced that they will delete your searches after 18 months, Google has not.

To get an idea bout how long Google is interested in your data, a Google cookie on your machine expires in the year 2038! [Note from Tim: this appears to have been reduced but someone with better detective skills should comment.] So the Google search you made 3 years ago for, say, "file sharing music"� could come back to haunt you 3 years from now when some new, even more odious version of the Digital Millennium Copyright Act (DMCA) comes into law.

Can even Google forever be trusted not to be evil? To what new ends will they put all that data about us? Anyway, doesn't it creep you out knowing that they are saving and analyzing every search you have ever made?

And now, with Google's acquisition of Doubleclick, they will be able to correlate your searches with the rest of your web browsing "“ and maybe make it more painful to block cookies from Doubleclick and Google.

Strategies to Protect Your Privacy

An anonymizer tool or a proxy site will mask your IP address and some of the info about your computer when you surf the web.

To get an idea about what websites, including search engines already know about you, check out this site: http://ipid.shat.net/. Spooky.

I use an Ironkey when I can, and there are both free sites and pay sites that can make your surfing anonymous. But some websites don't work well with these tools. [From Tim: I cannot wait to test Pandora -- one of my favorite sites -- overseas using some of the proxy sites.]

The World Privacy Forum suggests several strategies to help protect your privacy while using search engines:

"¢ Do not accept search engine cookies. If you already have some on your computer, delete them.
"¢ Do not sign up for email at the same search engine where you regularly search.
"¢ Mix it up. Use a variety of search engines.
"¢ Watch what you search for.
"¢ Read your news on one search engine, have your email on another, and use a handful of other separate search engines for Web research.
"¢ Vary the physical location you search from.
"¢ If you surf using a cable modem, or a static (unchanging) Internet connection, ask your service provider to give you a new IP address.
"¢ Be aware that your online purchases can be correlated to your search activity at some search engines.

The “Haystack” Call to Action

Unfortunately, these search strategies are cumbersome and not especially effective.

We certainly can not count on the government to respect or help to protect our privacy. And I would rather not have to trust Google and Ask.com to protect my privacy.

What we need is a simple tool that requires little of our attention, and provides pretty good privacy "“ something as simple to use as a browser plug-in.

This is an opportunity for a little constructive hacking, and browsers that allow plug-ins provide the perfect opportunity. What I am proposing is a simple plug-in for the Firefox browser (and any other browser that supports plug-ins) that will bury your searches in noise. Let's call this plug-in "Haystack."� [There are step-by-step tutorials for how to create Firefox plug-ins]

Here is how it works: Haystack generates a relatively low level background of random searches across a variety of search engines whenever your computer and your network connection are not too busy. The goal is to generate hundreds to thousands of random (hay) searches for every real search you do, such that your searches are a small needle in the haystack of these automatically-generated searches.

Search engines generally run analytic software that constantly looks for attacks "“ denial of service attacks, bogus click-throughs to pump up somebody's advertising costs, etc. Since the goal of Haystack is to protect our privacy, not to bring any search engine down, it must be written in such a way that, from the search engine's point of view, it looks like you are just manually searching.

"¢ Search engine variety: through a setup option, you can select which search engines Haystack uses, matching the ones you normally use yourself.

"¢ Frequency: I think one search every 15 seconds on average is about right, though the interval should be random, varying from say 5 seconds to about 5 minutes. If your machine is on for 10 hours per day, this will generate 2,400 "hay"� searches per day. Remember, the goal is to look as much like a lot of human-generated searches as possible, not to jam up the search engine.

"¢ Search terms: this needs to be very broad, random, and always changing. I suggest seeding the program with a search word list, and then pulling new search terms from the search results themselves, as well as occasionally from the text on the front pages of news sites like cnn.com. The searches must include a spectrum of provocative terms, so that any such search that you might do will not stand out.

"¢ Search complexity: like search terms, broad and random. Search for single words, as well as several words at a time, and even with excluded words.

"¢ Computer usage: Ideally, Haystack should not initiate searches when either your computer is very busy or your network connection is very busy. Since the actual search results are not valuable, Haystack should even abort an initiated search by closing the connection to the search engine if CPU usage suddenly increases.

"¢ User controls:
o On/off radio button
o Check boxes to enable one or more search engine sites
o Slider for search frequency (2 seconds to 10 minutes?)
o Button to clear search engine cookies and private data
o Button to get latest version

"¢ Output: Haystack should not bother the user with an open tab; the search results should be silently loaded and discarded (after gleaning a new search term or two from the data). A small icon on the toolbar indicating that Haystack is running should be good enough, perhaps also indicating the ratio of Haystack searches to your own searches.

If you and I both run Haystack, then the "information"� search engines collect from our searches is mostly noise. Perfect. But think what happens if millions of us run Haystack"¦ It does throw a monkey wrench into their lovely data collection machinery, doesn't it?

Such is the cost of asserting our right to privacy.

So why am I writing this? Simple: I am a hardware hacker. My software abilities are limited to some really tight assembly language code. I am also spending most of my time planning my next big hack into the world of oil consumption, perhaps the subject of a future article.

Although I care a lot about privacy and recognize its defense as a patriotic act, I am not the one to write Haystack.

Are you?

[Postscript: Readers have suggested several good tools that do most of what Haystack is designed to do. Read the comments for all the goodies, but here are two excellent picks: Scroogle (anonymizes Google searches) and TrackMeNot (noise-producing Firefox plug-in).]

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