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ƫ ƫƫđ STOPPING CRIME BEFORE IT HAPPENS


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RETIREMENT
PLAYBOOK
AMERICA’S TAX
TECH POWER BROKER PARADISE
SHERVIN PISHEVAR IRA MAGIC:
REALLOCATE NOW
“WE CAN HAVE IT
UP AND RUNNING BEST PLACES
IN FIVE YEARS.” TO LIVE EASY
CAP GAINS
TAX DODGE

FIDELITYVOICE:
REVVING UP
YOUR RETIREMENT

ALL ABOARD
THE HYPERLOOP!
EXCLUSIVE: ELON MUSK’S DREAM OF HIGH-SPEED TUBE TRAVEL
NOW HAS THREE GROUPS SPRINTING TO TURN IT INTO REALITY.
WELCOME TO THE NEW SPACE RACE.
Contents // March 2, 2015 VOLUME 195 NUMBER 3

ON THE COVER
68 | ALL ABOARD THE HYPERLOOP!
Exclusive: Elon Musk’s dream of high-speed tube
travel now has three groups sprinting to turn it into
reality. Welcome to the new space race.
BY BRUCE UPBIN

COVER PHOTOGRAPH BY JAMEL TOPPIN FOR FORBES

2 | FORBES MARCH 2, 2015


March 2, 2015
11 | FACT & COMMENT // STEVE FORBES
Will Europe drag down the world?

LEADERBOARD
16 | EXPAT’S CHOICE
Taxes, health care, climate, culture: Where are the
best places to retire abroad?

21 | HE, ROBOT
Japan’s Yoshiyuki Sankai and his billion-dollar prosthetics.
22 | PERMANENT PRESS
The demise of the printed book has (so far, at least)
been greatly exaggerated.
26 24 | BOTTLE ROYALE
Which celebrity booze should you drink?
26 | NETSCAPE NAVIGATOR
Web pioneer Jim Clark is a thrillionaire on the high seas.

28 | HOLY ROLLERS
Easy Rider, starring Popes Benedict and Francis.
30 | CONVERSATION
Actavis’ drug lord; readers condemn adultery site Ashley Madison.

THOUGHT LEADERS
32 | INNOVATION RULES // RICH KARLGAARD
Late bloomers in peril.

34 | CURRENT EVENTS // PAUL JOHNSON


Obama: bad but lucky.

36 | THE APOTHECARY // AVIK ROY


An economy revived by the GOP.

STRATEGIES
40 | SAFETY IN NUMBERS
46 With Ace Hardware’s distinctive jingle and neighborly service, members
of its national co-op are taking on the big boxes by sticking together.
BY CLARE O’CONNOR

42 | THRIVING ON FUMES
By creating a better tool for spotting gas leaks from oilfields
and pipelines, tiny Rebellion Photonics got the jump
on a global market no one else could see.
BY CHRISTOPHER HELMAN

TECHNOLOGY
46 | SERVER AND PROTECT
PredPol turned an earthquake-prediction model and years of
policing data into a map of crime that’s about to take place.
BY ELLEN HUET

48 | THE BACKUP PLAN


Austin McChord makes big money selling peace of mind to small
businesses hoping to avoid the catastrophe of data loss.
BY STEVEN BERTONI

ENTREPRENEURS
52 | GARBAGE INTO GOLD
52 Trex had the benefits of a monopoly—along with the arrogance that
almost killed it. Ron Kaplan saved the synthetic-decking pioneer by
treating it like a startup.
BY BRIAN SOLOMON
4 | FORBES MARCH 2, 2015
BECAUSE SOMEDAY

I want to drink beer brewed


by monks. With the monks.

Alert: Attachment: Reminder:


Fidelity Meeting Retirement Plan Today

SAVE

Every someday needs a plan . SM

Get a clear view of yours


when you move your old 401(k).
s/NE ON ONEGUIDANCEFOCUSEDONYOURGOALS NOTOURS
s!CONSOLIDATEDVIEWOFHOWYOURINVESTMENTSAREREALLYDOING
s4HEEXPERTISETOHELPYOUCHOOSEFROMABROADRANGE
OFINVESTMENTOPTIONS

Move your old 401(k) to a Fidelity Rollover IRA,


and get control over your own personal someday.

Fidelity.com/rollover
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Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain
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Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2015 FMR LLC. All rights reserved. 709195.3.0
March 2, 2015
INVESTING
56 | MUNIFICENT RETURNS
William Heyman gave up a high-profile Wall Street career
to become one of the gray men of insurance.
Travelers shareholders couldn’t be happier.
BY NATHAN VARDI

60 | PORTFOLIO STRATEGY // KEN FISHER


Tech’s sneaky market dividend.
62 | SMALL STOCKS // JIM OBERWEIS
Down but not out small caps.
64 | FIXED-INCOME WATCH // RICHARD LEHMANN
Why you should prefer preferreds.

FEATURES
76 | BRAIN BOOM
Advances in genetics and clinical science could lead to a flood of
new treatments for depression, Alzheimer’s and even schizophrenia,
rebooting one of the biggest markets in the drug business.
BY MATTHEW HERPER

RETIREMENT PLAYBOOK
84 | YOUR BIG FAT IRA
JONATHAN KOZOWYK

Save thousands a year by using one of our five


asset allocation cocktails.
BY WILLIAM BALDWIN

76 BrandVoice
BY FIDELITY

Are You On Track For


The Retirement You Want? 88

90 | TREASURE ISLAND
If you want your capital gains taxes to magically disappear,
Puerto Rico has a deal for you.
BY PHILLIP DEMUTH AND LAUREN GENSLER

96 | UNRETIREMENT
The Social Security and tax laws hold hidden traps and
rewards for the growing army of well-off folks who just keep
on working.
BY KELLY PHILLIPS ERB

100 | TAKEOVER TAX DODGE


Is an unwanted capital gain staring you in the face?
Turn it into a Pomona charitable gift annuity.
BY WILLIAM BALDWIN

104 | THE CROSS-POLLINATOR


Raised Catholic in the Philippines, Angelica Berrie now
runs a charity that gives 40% of its money to Jewish causes,
including unconventional ones, such as helping gay and
transgender Israelis.
BY ASHLEA EBELING

LIFE
108 | A NEW PLACE IN THE SUN
With the opening of the Belle Mont Farm resort and a bold
plan for expansion, can St. Kitts become another St. Barts?
BY HANNAH SELIGSON

96 112 | THOUGHTS
On newspapers.

6 | FORBES MARCH 2, 2015


BECAUSE SOMEDAY

Every day will be


a personal day.
Attachment:
Alert: Reminder:
Retirement
Fidelity Meeting Today
Income Plan

SAVE

Every someday needs a plan . SM

Put some certainty in your retirement


lifestyle with a guaranteed stream of income.
One simple investment gives you cash flow for as long as you want — or as long as you live.
Call to talk with a Fidelity representative about your retirement plan.

Fidelity.com/income
866.467.1634

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their careers fade away, there will be little solace in an onion
Title is protected through a trademark registered with the U.S. Patent & Trademark Office. Printed in the U.S.A.
sandwich or can of beer. F
8 | FORBES MARCH 2, 2015
FACT & COMMENT — STEVE FORBES
“With all thy getting, get understanding”

WILL EUROPE
DRAG DOWN THE WORLD?
BY STEVE FORBES, EDITOR-IN-CHIEF

WHILE GREECE is dominating the unconnected businesses, i.e., most of


headlines, two other recent pieces of the private sector, are shafted.
news underscore why the EU is in a se- Most of the reserves created by this
rious economic and political crisis that new version of quantitative easing will
could have devastating consequences stay parked at the ECB. Worse, the ECB
for the U.S. and the rest of the world. gives Europe’s politicians an excuse not
One event is well known. The Eu- to make the domestic restructurings
ropean Central Bank announced that that are needed to spark real growth,
it will embark on a gargantuan bout of such as truly curbing bloated public
quantitative easing to pull the conti- sectors, slashing onerous tax rates and
nent’s stagnant economies out of their liberalizing labor markets.
slump. The ECB is repeating the mis- Europe’s troubled economies will
takes of the Federal Reserve and the Bank of Japan. It continue to stagnate. As the elections in Greece demon-
will be buying government securities (though, theoreti- strate, these troubles are leading to ugly political reper-
cally, the central banks of particular countries will bear cussions. France’s xenophobic, fascistic National Front
the risk) to boost bank reserves and suppress interest has gained immense new support. Radicals are set to
rates. In a normal world banks would then boost their dominate Spain’s elections later this year. May elections
lending, taking this “high-powered money” and “mul- in Britain could set in motion a train of events leading
tiplying” it. Once upon a time one euro of new reserves to the Sceptred Isle’s withdrawal from the EU.
would end up creating €8 to €10 in new loans. Not now. A collapse of the EU and the euro would be disas-
The rate of interest is the price a borrower pays for trous, putting the world on a chaotic course not seen
“renting” the money. Price controls always harm and since the 1930s.
distort markets. Suppressing interest rates has seri-
ously distorted credit markets around the world, mak-
ing it more difficult for new, small and medium-size
Feckless Obama
businesses to get adequate credit at reasonable terms. Endangers Us All
Most households face the same situation.
Now we come to the lesser-known story: No sooner In the 1950s C. Northcote Parkinson, an author and
had the ECB embraced the Fed’s failed policies (it’s no British naval historian, noticed something rather odd
coincidence that as the Fed wound down and ended QE, when he was researching what had happened to Brit-
job creation in the U.S. improved) than the news came that ain’s navy after WWI. Once hostilities ended the navy
the ECB would tighten capital requirements on European was sharply downsized. Yet the bureaucracy running
banks. Even institutions that meet regulatory capital lev- the navy expanded as the navy diminished. Parkinson
els today will be urged to beef up their capital cushions. hit on a truism: The size of an organization is not re-
The ECB’s cluelessness is breathtaking. How does a lated to the actual work with which it is tasked.
bank increase its capital cushion? By selling new equity, Parkinson’s law is at work today in our own Defense
cutting dividends—and making fewer loans. Regula- Department. Defense analyst Mackenzie Eaglen ob-
tors are obsessed with gauging a bank’s “risk-adjusted served in a recent Wall Street Journal piece that “since
assets.” By the perverted lights of bank overseers, a loan 2009 the Pentagon’s civilian workforce has grown by
to Portugal is less risky than a loan to Apple. Politically about 7% ... while active-duty military personnel have

MARCH 2, 2015 FORBES | 11


FORBES

FACT & COMMENT // STEVE FORBES

been cut by roughly 8%. At the same Forbes.com. “It is stunning that a pub-
time, dozens of military-equipment Baseless Bashing Of lic agency entrusted with the health
and weapons programs have been
canceled.” The deteriorating global
E-Cigs of the population of California would
promote such a one-sided, scientifi-
situation makes this trend especially Superstitions are alive and well. Not cally impoverished document.”
foolish and dangerous. Military chiefs, the kind athletes and other perform- Alas, California isn’t an outlier in
though well aware they’re subordi- ers are known to indulge in, but big these baseless assaults. Other health
nate to civilian officials, are extremely ones, like the belief in witches cen- officials who know better indulge the
worried and are oh-so-delicately let- turies ago, that affect all of us. One current hysteria. Numerous cities
ting their concerns be known. example: the weird war that health and states are imposing cigarette-like
Even a Republican Congress will officials continue to wage against restrictions/bans on these life-saving
find it very difficult to force the Presi- electronic cigarettes. E-cigs have devices. And politicians are pushing
dent to devote more resources to beef- been a godsend to people who wish for punitive taxes on them.
ing up our combat capabilities, but it to give up smoking or avoid taking up The new surgeon general, Dr.
has a duty to do so. A growing number the habit in the first place. These de- Vivek Murthy, has sensibly noted that
of Democrats are waking up to the vices involve no smoke, only a vapor, there’s a “desperate need of clarity” on
gravity of Obama’s bizarre and feckless but give one the pleasure of nicotine the subject of electronic cigarettes. If
behavior: The contrast between the without wrecking the lungs. a fact-based, nonhysterical approach
reactions of Jordan’s King Abdullah Smoking among teenagers is at the were taken, all would be well. But don’t
to ISIS’ recent barbaric execution of a lowest level since authorities began count on anything like that happening.
Jordanian pilot and Barack Obama’s to surveying people back in 1975. Not The fanatical fervor of antismoking
its beheading of an American journal- coincidentally, e-cig usage among crusaders won’t be stopped by objec-
ist last summer (after briefly deploring teenagers has grown enormously. But tive science. The reason? E-cigs too
the death, our Commander-in-Chief instead of being hailed as the most closely resemble the real thing—which
promptly went off to play five hours effective antismoking tool ever, e- is like waving the proverbial red cape in
of golf ) is embarrassing. Events are cigs have been pilloried as the devil’s front of a bull. But there’s also another
tragically reinforcing the need for device to hook the unwary to tobacco factor at work: an intolerant, puritani-
Congress to act as Ukraine, the Middle and for posing hideous health threats cal mind-set that is offended because
East and Nigeria continue to deterio- to users. The latest example is a re- e-cigs make abstaining from or giving
rate and Islamic terrorism spreads. port entitled “A Community Health up cigarettes too easy. Forsaking smok-
At a recent hearing of the Senate Threat” from the California Depart- ing should involve pain, not pleasure!
Armed Services Committee Senator ment of Public Health, which apoca- Instead of focusing on sensible
John McCain (R–Ariz.) asked Obama’s lyptically attacks e-cigs and calls for guidelines to ensure the safe and
Defense Secretary nominee, Ashton drastic action to curb their use. sound manufacturing of electronic cig-
Carter, if the Administration had a It turns out this report is scien- arettes, antismoking jihadists indulge
strategy for combating and defeating tific garbage: It twists facts, quotes in what might be called a scorched-
ISIS and, if it did, what that strategy scientific studies out of context and is earth approach. All tobacco products
was. The poor man floundered. Clearly, laced with outright whoppers. Health are regarded as equally bad—a scientif-
the answer was one everyone already expert Sally Satel succinctly and ic falsehood—and anything resembling
knew: Obama has no plan at all. thoroughly demolishes this egregious cigarettes, even when no tar or smoke
And the whole world knows it. example of junk science in a piece on is involved, must be quashed. F

Restaurants: Go, Consider, Stop


Edible enlightenment from our eatery experts and colleagues Richard Nalley, Monie Begley, Randall Lane and Chef Jeff Lamperti,
as well as brothers Bob, Kip and Tim.

z Casa Lever z Omar’s z Han Dynasty


390 Park Ave., at 53rd St. (Tel.: 212-888-2700) 21 West 9th St. (Tel.: 212-677-5242) 90 Third Ave., near 12th St. (Tel.: 212-390-8685)
Although often noisy, this place is very cool in This restaurant/supper club with its well-thought- A storefront restaurant that’s the far-above-ex-
its design and décor. Some dishes are excellent, out menu is a welcome addition to the West Village. pectation spot you’d like to keep as your own se-
but the kitchen needs a kick, as there’s less love Salads, tuna tartare and Serrano ham make for cret. Dishes vary in cooking style, with heat scale
going on these days. Favorites: the calamari tasty starters. The gambas al ajillo (garlic shrimp (can be adjusted to your preference) indicated.
special paired with squash and chilies and the with Serrano ham), organic chicken and Chilean Even the mild offerings, like the wonderful Dan
spicy arrabbiata spaghetti. Don’t pass on the sea bass are first-rate. Rich ice cream between Dan noodles, have some sneaky burn to them. A
profiteroles or millefoglie; both are scrumptious. chocolate chip cookies will put a smile on your face. must: the lingeringly aromatic cumin-style lamb.

12 | FORBES MARCH 2, 2015


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LeaderBoard March 2, 2015

THE EXPAT’S RETIREMENT MAP 16

JAPAN’S CYBORG BILLIONAIRE 21

BLEND IT LIKE BECKHAM 24

THE SUPERMODEL AND THE MAXI YACHT 26

This Harley-Davidson motorcycle, given to Pope Francis


by designer Willie G. Davidson (and hand-signed by the
pontiff), fetched $327,000 at auction in 2014. Pope Benedict
got one, too—and his serigraph-signed hog, auctioned for
charity last month, pulled in 80% less. Good heavens!
PAGE 28

ANTOINE ANTONIOL / GETTY IMAGES


MARCH 2, 2015 FORBES | 15
LeaderBoard
ATLAS

Florida Loses The FRANCE

Retirement Monopoly CANADA Food and health care


big draws. High-tax
nation offers breaks
AS RETIREMENT GOES GLOBAL, finding the for foreign retirees.
perfect paradise requires comparison shopping. Beauty at reasonable cost Better values found
outside big cities. Popular way outside Paris, such
We’ve identified the 20 best based on cost of living places include the scenic, as Bordeaux or Lyon,
(including taxes), medical care, climate, cultural ferry-accessible Sunshine near Alps.
Coast on Strait of Georgia.
attractions, crime, ease of return to the U.S. and But it’s tough for retirees
to get year-round
hospitality to U.S. retirees. residency.

BELIZE PORTUGAL

$
Paradise of barrier reef fishing, Closest western European
boating, beach. Retirees courted with country to U.S. and cheapest,
tax breaks. Popular spot: Ambergris with benefits for foreign
Caye. Miami just two hours away by retirees. Expat hot spots include
plane. English is official language. Algarve region on the Atlantic
Coast, just south of Lisbon.
PANAMA

MEXICO $
$ NICARAGUA Florida-like experience at steep
discount. Tax breaks and discounts for

$
retirees. Health care top-rate and cheap.
Warm climate, low Among favored sites: highlands town of
costs and friendliness. Boquette. Quick hop back to U.S.
Proximity to the U.S. Unstable past shed, now
makes using Medicare leveraging natural beauty.
possible. San Miguel Economic incentives for COLOMBIA
de Allende, Lake retirees. Colonial city of
Chapala appealing.
Just stay away from
Granada, on Lake Nicaragua
near the Pacific Ocean, is a real ECUADOR $
$
border towns. gem. Short flight to U.S.
Onetime hotbed of violent drug
traffickers now has inviting
Maybe world’s greatest retirement aura sporting good
retirement value play. Beautiful weather and scenery, low costs.
terrain, beaches and, offshore, Medellín particular draw for its
Galápagos Islands. Expats like European flavor.
mountain town of Cuenca, with
pleasant climate year-round.
CHILE

Wide range of agreeable


climates at a reasonable
cost. No local tax on
COSTA RICA foreign retirement income.
Expats inhabit beach
cities of La Serena and
Vina del Mar. But long trip URUGUAY
back to U.S.
Political stability and bicoastal beauty
long a lure for U.S. retirees. Only $1,000 in
monthly income needed for permission to
settle. Central Valley appealing. Three-hour Four seasons but little snow, with
plane ride back to States. gorgeous Atlantic beaches. Most
foreign income not taxed. But
Montevideo, popular with expats, is
closer to South Pole than to New York.

16 | FORBES MARCH 2, 2015


KEY
CULTURAL APPEAL

EXCELLENT CLIMATE

$ LIVING COSTS/TAXES AFFORDABLE

IRELAND GOOD MEDICAL CARE

EASY TO GET BACK TO U.S.

Almost extension of EASY TO GET RESIDENCY


U.S., except prettier.
Popular venues GET BY WITH ENGLISH ONLY
include Dingle and
Ballybunion on
Atlantic Ocean.
Cheap quick flights
back to U.S.

CROATIA

$ THAILAND
Beautiful scenery
and climate on $
Adriatic Sea.
Inviting retirement Solid, cheap health care,
venues include the warm tropical climate and
Istria peninsula and low living costs. Northern
walled medieval town of Chiang Mai draws
waterfront city of buzz. Political tensions
Dubrovnik. But no avoid expats. But trip back
direct flights to U.S. to States can take full day.

ITALY THE PHILIPPINES

$
Good climate, great food, affordable health Tropical environment,
care. Cost of living reasonable if big cities outdoor beauty and tax
avoided for places like scenic Marche and breaks attract retirees.
Abruzzo regions. Government policy favors Popular locations
residency visas. include elevated,
cooler Manila suburb
of Tagaytay. Nonstop
flights to U.S. average
15 hours.
MALAYSIA

$
Hot, humid climate offset
by cheap living, terrific
outdoor venues and mix
of cultures. English widely
spoken. George Town, on
Straits of Malacca, very
livable. But 19-hour flight
back to U.S.

SPAIN
AUSTRALIA

A bit like Florida but


$
cheaper if inland from Warm Down Under climate with
BY WILLIAM P. BARRETT

beautiful coasts. Terrific beaches, low crime. Melbourne,


culture. Possibilities: Adelaide, Brisbane among
near Costa del Sol along expat centers. Steep financial
Mediterranean and requirements for retirees and 14½-
Orange Blossom Coast hour plane ride back to States.
near Barcelona.

MARCH 2, 2015 FORBES | 17


For people with a higher risk of stroke due to
Atrial Fibrillation (AFib) not caused by a heart valve problem

ELIQUIS® (apixaban) is a prescription medicine used to reduce the risk of stroke and blood clots in
people who have atrial fibrillation, a type of irregular heartbeat, not caused by a heart valve problem.

IMPORTANT SAFETY INFORMATION: Get medical help right away if you have any of
these signs or symptoms of bleeding:
Do not stop taking ELIQUIS for atrial fibrillation - unexpected bleeding, or bleeding that lasts a
without talking to the doctor who prescribed it for long time, such as unusual bleeding from the
you. Stopping ELIQUIS increases your risk of having gums; nosebleeds that happen often, or
a stroke. ELIQUIS may need to be stopped, prior menstrual or vaginal bleeding that is heavier
to surgery or a medical or dental procedure. Your than normal
doctor will tell you when you should stop taking - bleeding that is severe or you cannot control
ELIQUIS and when you may start taking it again. If - red, pink, or brown urine; red or black stools
you have to stop taking ELIQUIS, your doctor may (looks like tar)
prescribe another medicine to help prevent a blood - coughing up or vomiting blood or vomit that looks
clot from forming.
like coffee grounds
ELIQUIS can cause bleeding, which can be serious, - unexpected pain, swelling, or joint pain; headaches,
and rarely may lead to death. feeling dizzy or weak
You may have a higher risk of bleeding if you take ELIQUIS is not for patients with artificial heart valves.
ELIQUIS and take other medicines that increase your
risk of bleeding, such as aspirin, NSAIDs, warfarin Spinal or epidural blood clots (hematoma). People
(COUMADIN®), heparin, SSRIs or SNRIs, and other who take ELIQUIS, and have medicine injected into
blood thinners. Tell your doctor about all medicines, their spinal and epidural area, or have a spinal
vitamins and supplements you take. While taking puncture have a risk of forming a blood clot that
ELIQUIS, you may bruise more easily and it may can cause long-term or permanent loss of the
take longer than usual for any bleeding to stop. ability to move (paralysis).
I was taking warfarin.
But ELIQUIS was a better find.
I TAKE ELIQUIS® (apixaban) FOR 3 GOOD REASONS:
1 ELIQUIS reduced the risk of stroke better than warfarin.
2 ELIQUIS had less major bleeding than warfarin.
3 Unlike warfarin, there’s no routine blood testing.
ELIQUIS and other blood thinners increase the risk of bleeding which can be
serious, and rarely may lead to death.

Ask your doctor if ELIQUIS is right for you.


This risk is higher if, an epidural catheter is placed You are encouraged to report negative side effects
in your back to give you certain medicine, you take of prescription drugs to the FDA. Visit www.fda.gov/
NSAIDs or blood thinners, you have a history of medwatch, or call 1-800-FDA-1088.
difficult or repeated epidural or spinal punctures.
Tell your doctor right away if you have tingling, Please see additional
numbness, or muscle weakness, especially in your Important Product Information
legs and feet. on the adjacent page.
Before you take ELIQUIS, tell your doctor if you
have: kidney or liver problems, any other medical
condition, or ever had bleeding problems. Tell Individual results may vary.
your doctor if you are pregnant or breastfeeding,
or plan to become pregnant or breastfeed.
Do not take ELIQUIS if you currently have certain Visit ELIQUIS.COM
types of abnormal bleeding or have had a serious or call 1-855-ELIQUIS
allergic reaction to ELIQUIS. A reaction to ELIQUIS
can cause hives, rash, itching, and possibly
trouble breathing. Get medical help right away if
you have sudden chest pain or chest tightness, ©2014 Bristol-Myers Squibb Company
have sudden swelling of your face or tongue, 432US14BR01976-01-01 11/14

have trouble breathing, wheezing, or feeling


dizzy or faint.
IMPORTANT FACTS about ELIQUIS® (apixaban) tablets
The information below does not take the place of talking with your healthcare professional. Only your healthcare
professional knows the specifics of your condition and how ELIQUIS may fit into your overall therapy. Talk to your
healthcare professional if you have any questions about ELIQUIS (pronounced ELL eh kwiss).
What is the most important information forming a blood clot that can cause long-term Tell your doctor about all the medicines you
I should know about ELIQUIS (apixaban)? or permanent loss of the ability to move take, including prescription and over-the-
For people taking ELIQUIS for atrial (paralysis). Your risk of developing a spinal or counter medicines, vitamins, and herbal
fibrillation: Do not stop taking ELIQUIS epidural blood clot is higher if: supplements. Some of your other medicines
without talking to the doctor who prescribed • a thin tube called an epidural catheter may affect the way ELIQUIS (apixaban) works.
it for you. Stopping ELIQUIS increases your is placed in your back to give you certain Certain medicines may increase your risk of
risk of having a stroke. ELIQUIS may need medicine bleeding or stroke when taken with ELIQUIS.
to be stopped, prior to surgery or a medical • you take NSAIDs or a medicine to prevent How should I take ELIQUIS?
or dental procedure. Your doctor will tell you blood from clotting Take ELIQUIS exactly as prescribed by your
when you should stop taking ELIQUIS and when • you have a history of difficult or repeated doctor. Take ELIQUIS twice every day with or
you may start taking it again. If you have to epidural or spinal punctures without food, and do not change your dose or
stop taking ELIQUIS, your doctor may prescribe • you have a history of problems with your stop taking it unless your doctor tells you to.
another medicine to help prevent a blood clot spine or have had surgery on your spine If you miss a dose of ELIQUIS, take it as soon
from forming. If you take ELIQUIS (apixaban) and receive as you remember, and do not take more than
ELIQUIS can cause bleeding which can be spinal anesthesia or have a spinal puncture, one dose at the same time. Do not run out
serious, and rarely may lead to death. This is your doctor should watch you closely for of ELIQUIS. Refill your prescription before
because ELIQUIS is a blood thinner medicine symptoms of spinal or epidural blood clots you run out. When leaving the hospital
that reduces blood clotting. or bleeding. Tell your doctor right away if you following hip or knee replacement, be sure
You may have a higher risk of bleeding if you have tingling, numbness, or muscle weakness, that you will have ELIQUIS available to avoid
take ELIQUIS and take other medicines that especially in your legs and feet. missing any doses. If you are taking ELIQUIS
increase your risk of bleeding, such as aspirin, for atrial fibrillation, stopping ELIQUIS may
nonsteroidal anti-inflammatory drugs (called What is ELIQUIS? increase your risk of having a stroke.
NSAIDs), warfarin (COUMADIN®), heparin, ELIQUIS is a prescription medicine used to: What are the possible side effects of
selective serotonin reuptake inhibitors (SSRIs) • reduce the risk of stroke and blood clots in ELIQUIS?
or serotonin norepinephrine reuptake inhibitors people who have atrial fibrillation. • See “What is the most important
(SNRIs), and other medicines to help prevent or • reduce the risk of forming a blood clot in the information I should know about
treat blood clots. legs and lungs of people who have just had ELIQUIS?”
Tell your doctor if you take any of these hip or knee replacement surgery. • ELIQUIS can cause a skin rash or severe
medicines. Ask your doctor or pharmacist • treat blood clots in the veins of your legs allergic reaction. Call your doctor or get
if you are not sure if your medicine is one (deep vein thrombosis) or lungs (pulmonary medical help right away if you have any of
listed above. embolism), and reduce the risk of them the following symptoms:
While taking ELIQUIS: occurring again. • chest pain or tightness
• you may bruise more easily It is not known if ELIQUIS is safe and effective • swelling of your face or tongue
• it may take longer than usual for any in children. • trouble breathing or wheezing
bleeding to stop • feeling dizzy or faint
Call your doctor or get medical help right Who should not take ELIQUIS?
Do not take ELIQUIS if you: Tell your doctor if you have any side effect that
away if you have any of these signs or bothers you or that does not go away.
symptoms of bleeding when taking ELIQUIS: • currently have certain types of abnormal
bleeding These are not all of the possible side effects of
• unexpected bleeding, or bleeding that lasts ELIQUIS. For more information, ask your doctor
a long time, such as: • have had a serious allergic reaction to or pharmacist.
• unusual bleeding from the gums ELIQUIS. Ask your doctor if you are not sure
Call your doctor for medical advice about side
• nosebleeds that happen often What should I tell my doctor before taking effects. You may report side effects to FDA at
• menstrual bleeding or vaginal bleeding ELIQUIS? 1-800-FDA-1088.
that is heavier than normal Before you take ELIQUIS, tell your doctor if This is a brief summary of the most
• bleeding that is severe or you cannot control you: important information about ELIQUIS.
• red, pink, or brown urine • have kidney or liver problems For more information, talk with your
• have any other medical condition doctor or pharmacist, call 1-855-ELIQUIS
• red or black stools (looks like tar) (1-855-354-7847), or go to www.ELIQUIS.com.
• cough up blood or blood clots • have ever had bleeding problems
• are pregnant or plan to become pregnant. Manufactured by:
• vomit blood or your vomit looks like coffee It is not known if ELIQUIS will harm your Bristol-Myers Squibb Company
grounds unborn baby
Princeton, New Jersey 08543 USA
• unexpected pain, swelling, or joint pain Marketed by:
• are breastfeeding or plan to breastfeed. Bristol-Myers Squibb Company
• headaches, feeling dizzy or weak It is not known if ELIQUIS passes into your Princeton, New Jersey 08543 USA
ELIQUIS is not for patients with artificial breast milk. You and your doctor should and
heart valves. decide if you will take ELIQUIS or breastfeed. Pfizer Inc
You should not do both New York, New York 10017 USA
Spinal or epidural blood clots (hematoma).
People who take a blood thinner medicine Tell all of your doctors and dentists that you are COUMADIN® is a trademark of Bristol-Myers Squibb
(anticoagulant) like ELIQUIS, and have medicine taking ELIQUIS. They should talk to the doctor Pharma Company.
injected into their spinal and epidural area, who prescribed ELIQUIS for you, before you
or have a spinal puncture have a risk of have any surgery, medical or dental procedure.
© 2014 Bristol-Myers Squibb Company
ELIQUIS is a trademark of Bristol-Myers Squibb Company.
Based on 1289808A1 / 1289807A1 / 1298500A1 / 1295958A1
This independent, non-profit organization provides assistance to qualifying patients with financial hardship who August 2014
generally have no prescription insurance. Contact 1-800-736-0003 or visit www.bmspaf.org for more information. 432US14BR00770-07-01
STEPHEN SCHWARZMAN
+$880 MILLION
NET WORTH: $11.9 BILLION
His private equity giant, Blackstone, celebrates

LeaderBoard a banner 2014: record profits, record


distributions, record assets under management.

NEW BILLIONAIRE

He, Robot
Japan’s top medical-cyborg maker joins
the ranks of world’s richest.
YOSHIYUKI SANKAI, founder and head of
Japanese robotics manufacturer Cyberdyne, is now
worth an estimated $1 billion thanks to shares in his
company quadrupling since they debuted last March
on the Tokyo Stock Exchange.
Sankai, 56, is the brains behind “cybernics,” a
multidisciplinary field that combines bionics, elec-
tronics and physics to build robotic prosthetics—
most notably HAL (Hybrid Assistive Limb), a wear-
able suit for the physically impaired that can be con-
trolled by signals from the brain. (The nod to 2001:
A Space Odyssey surely doesn’t hurt.)
Some 470 HAL suits are currently in use world-
wide. “I hope they’ll eventually be treated like
glasses,” Sankai told the Japan News. “Glasses used
to be nothing more than gadgets that enable people
to see better, but now they’re enjoyed as a fashion
item too.”
That might happen sooner than he thinks. Fore-
caster SNS projects the global market for “wearable
devices” will hit nearly $20 billion in revenue this
year and grow at a compound annual rate of nearly
40% over the next six. (Japan’s prime minister,
Shinzo Abe, has said he’d like a “robot Olympics”
alongside the 2020 Summer Games in Tokyo.)
Sankai is determined not to let his cyborgs take
over: He has created a dual share structure to keep
control of Cyberdyne—Class B shares, all of which he
owns, have double the voting rights of the company’s
other common stock—to prevent HAL, he says, from
being used for military or “unethical” purposes.

6 TO 9 2%
ASK 50 BILLIONAIRES I AM RETIRED 2% To how 10 OR MORE 4%
Do you plan many social
MICHAEL PRINCE (TOP); FRANCK ROBICHON / NEWSCOM

to retire I DON’T YES or country NONE


KNOW
25% 21%
someday? 24% clubs do you
NEW BILLIONAIRE BY TATIANA SERAFIN

3 TO 5 ONE
belong? 41% 12%
NO
TWO
49%
20%

ALL FIGURES AT THE TOP OF THIS AND SUBSEQUENT PAGES REPRESENT CHANGES IN WEALTH BETWEEN JAN. 13 AND FEB. 3. SOURCES: INTERACTIVE DATA VIA FACTSET RESEARCH SYSTEMS; FORBES.

MARCH 2, 2015 FORBES | 21


STEVE BALLMER
–$1.6 BILLION
NET WORTH: $20.7 BILLION

LeaderBoard
His Microsoft shares have surged since he
retired but drop 12% after successor CEO
Satya Nadella announces declining profits.

BY THE NUMBERS

Permanent PLUS ÇA CHANGE


The price of printed books hasn’t collapsed in the face of lower-cost digital publishing,
Press nor are publishers churning out scads of low-quality e-books. The number of books
(both print and digital) being published worldwide is about the same as in 2009,
WHEN AMAZON launched the Kindle in according to the number of International Standard Book Numbers (ISBNs) issued.
2007, book purists bemoaned the im- AVERAGE BOOK PRICE ISBNS (MIL)
minent demise of print. Yet far from her- $20 5
alding a publishing apocalypse, e-books
have been adopted only gradually despite PRINT (LEFT SCALE)
16 4
their affordability. Although half of U.S.
adults own a tablet or e-reader, e-books
12 3
make up only an estimated 23% of the E-BOOK (LEFT SCALE)
$35 billion industry—and Pew Research
reports that just 4% of Americans are 8 2
e-book only.
Sales show digital market share differs ISBNS ISSUED
4 1
(RIGHT SCALE)
greatly by genre, though: While guilty
readers of dog-eared Harlequin romances
0 0
have flocked to the format—36% of units 2009 2010 2011 2012 2013
sold in that genre in 2014 were e-books—
most nonfiction and school textbooks are
still purchased in print. The tame-looking UNFINISHED REVOLUTION
Kindle hides many a cheap thrill, too: Even in the biggest markets e-books are still only a fraction of overall sales
(23% of $35 billion in the U.S.; 18% of $5 billion in the U.K.), and electronic
Digital mysteries accounted for 32% of publishing is barely a rounding error in Germany and China.
the genre’s units last year, while e-books
made up more than a quarter of young- E-BOOK SALES AS % OF MARKET 2013 BOOK PUBLISHING MARKET
adult units sold, up from just 8% in 2012. 25%
U.S. $35 bil
Three of the top five Kindle bestsellers of
2014 were YA novels; Gillian Flynn’s Gone
20
Girl and Donna Tartt’s The Goldfinch were BRITAIN
the only grownups included. John Green’s $5 bil
teen weepie The Fault in Our Stars was 15
the true standout, however—it was both JAPAN
the top print and e-book seller of 2014. $12 bil

10

GERMANY $13 bil


5
CHINA
$12 bil

0
2009 2010 2011 2012 2013
MARK LENNIHAN/AP; TOMOHIRO OHSUMI / BLOOMBERG (TOP)

Books-a-Zillion:
Amazon CEO Jeff
BY NATALIE ROBEHMED

Bezos introduces
the Kindle in
November 2007.

SOURCES: BOWKER; NIELSEN BOOKSCAN;


PEW RESEARCH; PWC.

22 | FORBES MARCH 2, 2015


HOWARD SCHULTZ
+$170 MILLION
NET WORTH: $2.4 BILLION
Starbucks boss wants his coffee on even more

LeaderBoard corners. Shares climb 9% as he announces plan


to add 1,650 stores this year—half in Asia.

30 UNDER 30 CELEBRITY 100


THE SPIRITS BUSINESS is
Snowflakes Bottle Royale booming. U.S. retail sales alone
Your unique and perfect match from the hit $70 billion last year, up from
FORBES 30 Under 30, in 30 words or less. $57 billion in 2009. Some of that
growth is coming from younger
drinkers who are bailing on
Nikki beer but who wouldn’t know
an 18-year-old Laphroaig from
Kaufman an 18-day-old Lime-A-Rita—so
NORMAL | 28
boozemakers are eagerly sign-
Using 3-D printers, ing up celebrity endorsers to
Kaufman’s operation
hawk their elixirs to a younger
makes $199 head-
phones custom-fitted generation. The latest? Haig
to your ears. Order via Club, David Beckham’s new
a mobile app, or visit “single-grain” whisky (no, we
Normal’s New York don’t know, either), which bills
flagship to see the itself as “modern Scotland in a
printing firsthand.
glass!” For $51 you get about 24
ounces of the stuff, packaged
Walker Williams and in a steroidal cologne bottle
Evan Stites-Clayton that makes us think of nothing
TEESPRING | 25, 26
so much as the bracing snap of
Aqua Velva. Not your cup of ce-
Teespring helps budding fashion designers make and
sell bespoke T-shirts. Twenty of the site’s users have
lebrity hooch? No worries—you
sold more than $1 million worth of shirts; the company have others to choose from.
has raised $55 million.
CELEB:
Marilyn
Manson
SPIRIT:
Mansinthe
($59)
DEBUTED:
2007
CLAIMS:
“A high-quality absinthe
made with Swiss accuracy
and precision.” Like a Tag
Heuer with a “hallucination”
complication.
DRINK IT IF:
You have (literal) skeletons
in your closet.
CELEB:
Dan
PHOTOGRAPH: TED S. WARREN/AP (TOP); ILLUSTRATIONS BY PATRICK WELCH

CELEBS: Aykroyd
SPIRIT:
Kurt Taylor George Clooney and
Rande Gerber Crystal Head Vodka
NEXT GLASS | 26 SPIRIT: ($50)
DEBUTED:
30 UNDER 30 BY KATHRYN DILL; LIQUOR BY BRIAN DAWSON

Casamigos tequila
Taylor’s app creates 2008
($49)
personalized taste profiles, DEBUTED: CLAIMS:
spitting out the per- 2013 “Highest-quality Peaches &
centage likelihood that CLAIMS: Cream corn is distilled four
“Our agave piñas are times into a neutral grain
connoisseurs will enjoy
roasted in traditional brick gluten-free spirit.” Gluten-
a particular wine or beer free cirrhosis is
ovens for 72 hours, while
and making specific most others steam theirs the best cirrhosis.
recommendations. for 7 hours.” So there, DRINK IT IF:
most others! You’re hoping for a
DRINK IT IF: career-capping cameo in
You’re inconsolable that the coming Ghostbusters
both Amal Alamuddin and remake.
Cindy Crawford are off the
market. For now.

24 | FORBES MARCH 2, 2015


It’s official.
AT&T’s network now has the nation’s
strongest LTE signal.

1.866.MOBILITY ATT.COM/network Visit a Store

Claim based ONLY on avg. LTE signal strength for national carriers. LTE is a trademark of ETSI. LTE not avail. everywhere. ©2015 AT&T Intellectual Property. All rights reserved.
KATY PERRY
+140,000 FOLLOWERS 
The lollipop songstress added twice as many

LeaderBoard
Twitter followers on Super Bowl Sunday
as Bruno Mars did after last year’s halftime
extravaganza. Credit Left Shark, apparently.

THRILLIONAIRES

Netscape Navigator
Web pioneer Jim Clark is the latest mogul to seek Owner: Larry Ellison
Event: 2013 America’s Cup
silverware on the high seas. Boat: USA-17
“SOMEONE ONCE ASKED ME if it’s worth $100 million to win the America’s Cost: $8 million to
$10 million
Cup,” Oracle founder Larry Ellison once said. “It’s certainly not worth $100 mil- Cost of campaign:
lion to lose the America’s Cup.” But what about the Sydney Hobart race, one of $300 million
the world’s most demanding sailing competitions? For Netscape cofounder Finished: First
Cap’n says: “I discovered
Jim Clark, a former Navy man, last December’s 628-nautical-mile race was that my personality
especially meaningful because his 35-year-old Australian supermodel wife, doesn’t allow me to
quit while winning.”
Kristy Hinze-Clark, wanted to take part as a crew member.
So the 70-year-old billionaire built Comanche (a state-of-the-art
supermaxi yacht), assembled an impressive international sailing
team (skippered by American Ken Read) … and came in second to
Wild Oats XI, owned by Aussie vintner Robert Oatley, the eight-
time winner of the contest. Here’s how Clark’s campaign
compares with those of other famous water warriors.
Owner: Bill Koch
Event: 1992 America’s Cup
Boat: America3
Cost: $5 million
Cost of campaign:
$68 million
Finished: First
Cap’n says: “Financially,
I would say, win or lose,
it’s not worth it.”
Owner: Jim Clark
Event: 2014 Rolex
Sydney Hobart
Yacht Race
Boat: Comanche
Cost: $15 million
Estimated cost of
campaign: $40 million
Finished: Second
Cap’n says: “Boats of
this type are sort of like Owner: Sami Inkinen
building a Formula 1 Event: 2014 Great
car. You are not going Pacific Race
to ever get anything Boat: Roosevelt
back from it, except Cost: $45,000
enjoyment.” Cost of campaign:
Raised more than
$300,000 to combat
childhood obesity
Finished: First
KEVIN MAZUR/GETTY IMAGES (TOP); CAMERON SPENCER/GETTY IMAGES

(pairs division)
Cap’n says: After
successfully rowing from
Monterey to Honolulu
for 45 days with his
wife, Inkinen wrote on
his blog: “Divorce papers
are untouched in a
waterproof container.”
BY MICHAEL SOLOMON

26 | FORBES MARCH 2, 2015


Everything we do best.
All under one panoramic sunroof.
The new Volkswagen Touareg TDI® Clean Diesel. Let the sun shine down through the available
panoramic sunroof * on every luxurious detail in the new Touareg, the pinnacle of German craftsmanship.
Get comfortable in its 8-way power-adjustable heated front seats and enjoy available new features,
like Lane Departure Warning, Autonomous Emergency Braking,** and Adaptive Cruise Control – all of
which help offer the invaluable amenity of more confidence on the road. It’s everything we’ve perfected,
perfectly combined. Isn’t it time for German engineering?

vw.com *Available only on select trims. **Do not rely solely on Front Assist with Autonomous Emergency Braking. It is designed to help minimize the effects of certain collisions and is not a
substitute for attentive driving. This feature has important limitations; see Owner’s Manual for further details. ©2015 Volkswagen of America, Inc.
SILVIO BERLUSCONI
–45 DAYS
NET WORTH: $7.5 BILLION
Italy’s ex-premier catches a bit of a break: His one-year

LeaderBoard community-service sentence for tax fraud is reportedly


chopped by a judge to 320 days for “good behavior.”

ON THE MARKET

Holy Rollers company’s founder, presented Pope Francis with a 110th-


anniversary Dyna Super Glide, which was auctioned last
Two popes and their two-wheelers. year (along with a motorcycle jacket signed by His Holi-
ness) at Bonhams in Paris.
WHEN YOUR DAILY SLED is the bulletproof Pope- This February the auction house put a second Harley up
mobile, you don’t have much use for a motorcycle, let alone for bid: a Softail Classic that Davidson gave to Pope Benedict
a pair of them. But that hasn’t stopped Harley-Davidson XVI, which ended up in Francis’ garage (near the Pirelli cal-
from giving the Vatican a hog now and then. In 2013 Willie endar) after Benedict abdicated in early 2013. The proceeds
G. Davidson, a retired Harley designer and grandson of the from each sale went to charity—Heaven’s Angels indeed.

FRANCIS BENEDICT XVI

THE HOG
2013 Harley-Davidson FXDC Dyna Super Glide

THE ENGINE
1,584cc air-cooled
Twin Cam 96B
SIGNED?
“Francesco”

BLESSED?
No

DIVINE JUDGMENT
PRESALE ESTIMATE THE HOG
$16,000–$22,000 2013 Harley-Davidson FLSTC Softail Classic

AUCTION PRICE THE ENGINE


$327,000 1,687cc air-cooled
Twin Cam 103B

PIERPAOLO SCAVUZZO / SIPA / NEWSCOM (TOP); POPE BENEDITCT XVI: FRANCO ORIGLIA / GETTY
SALES VERDICT
Holy smoke! SIGNED?
“Benedictus PP XVI”;
also by Willie G. Davidson

BLESSED?
Yes, by Benedict himself
IMAGES; POPE FRANCIS: FRANCO ORIGLIA / GETTY IMAGES

DIVINE JUDGMENT
PRESALE ESTIMATE
$18,000–$31,000
AUCTION PRICE
$52,000
SALES VERDICT
BY MICHAEL SOLOMON

Blessed ... but beaten

28 | FORBES MARCH 2, 2015


JEFF BEZOS
+$5.8 BILLION
NET WORTH: $33.3 BILLION
Amazon shares soar 23% after profitable

LeaderBoard quarter; his fortune jumps by nearly


four times Barnes & Noble’s market value.

CONVERSATION
MATTHEW HERPER’S Feb. 9 profile of
Actavis CEO Brent Saunders, who is rewrit-
YOUR CHEATIN’
ing the standard drug business model, spurred HEART
comments from around the medical world. Adam Tanner’s Feb. 9 piece about
adultery-facilitating site Ashley
Health care consultant John Manzella called
Madison—which makes money
Saunders “the new delivery system of Big Phar- by making it easier for wandering
ma,” comparing his disruptions with “what the spouses to conduct their discreet
Dells of the world did to the IBM behemoths,” business—drew impassioned reader
but adding, “Ironically, it will only be a mat- responses on Facebook.
ter of time before he becomes the dragon he is
slaying.” Tweeted WebMD’s Adam Grossberg: CARLY HARTWICK
Very disappointing that
“Really enjoyed @matthewherper’s account this is a reality today, but
of Brent Saunders’ culture building + value not surprising one bit.
creation.” Wall Street Journal biotech writer
Jonathan Rockoff put tongue firmly in cheek.
GEORGE YAZBECK
“Loved the article,” he tweeted, “but wish just Great businessman, low
once you referred to him as future Pfizer CEO.” moral standards. It would
be ironic if his wife cheat-
ed on him, but I wouldn’t
THE INTEREST GRAPH wish that on anyone.

Sports, feuding families and cheating spouses: Readers online gobbled up the good stuff from our Feb. 9 issue.
RENEE DESCARTES
Why is everyone judging?
If you work on your rela-
The NBA’s Most Valuable Teams 113,141 page views tionship as much as your
job, this site is irrelevant.

Daughter Knows Best: Inside the 84 Lumber Saga


LAURENCE JAMES
91,229
Life is short. It’s sad to think
someone is profiting from
ruining lives and families.
Even in the Tinder Era, Adultery Site Ashley Madison Keeps Making Money
“I’ve been blessed
64,183
to have a father
TEJINDER SINGH
that is as rough as Whether it’s morally right
This Giant Drug Firm Won’t Invent Medicines. Investors Are Cheering a son of a bitch but or wrong is not the issue.
believed in me.” Whether it’s profitable is.
52,588 “I understand the
problems of monogamy
Is Vanguard Too Successful? and the people who
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THOUGHT LEADERS
RICH KARLGAARD // INNOVATION RULES

LATE BLOOMERS IN PERIL


IN LAST MONTH’S SUPER BOWL the consequences are not trivial.
neither the New England Patriots nor In January I moderated a panel at the
the Seattle Seahawks had a five-star STEM 2.0 conference, which was sponsored
recruit in their starting lineup. Trans- by a Washington, D.C. organization called
lation: Not one of the 44 starters was a STEM Connector. STEM stands for sci-
top-rated prospect in high school. ence, technology, engineering and math. The
If you cheer for late bloomers, purpose behind STEM promotion is that
it gets even better. According to individual careers and countries will prosper
247sports, a website that keeps track of to the degree that they have STEM fluency.
who’s who in high school sports, both This makes sense in a technology-driven
the Seahawks and the Patriots had only economy. The facts support the premise, and
four four-star recruits among their few would argue.
starters. As first reported by CBS Sports, the Seahawks had an average The idea of STEM fluency as a prereq-
rating of 2.4 among its starters, while the Patriots scored 2.3. uisite for individual and national success is
Now look at the quarterbacks. Russell Wilson was a three-star not new. Yet progress has been slow, if not
prospect coming out of Collegiate High School in Richmond, Va. He nonexistent. The U.S.’ STEM fluency in K-12
began his college football career at North Carolina State, transferred education is falling behind that of other
to the University of Wisconsin and in 2012 was drafted in the NFL’s countries. American culture doesn’t warm to
third round. Tom Brady didn’t even start at the University of Michi- STEM heroes the way it does to athletes, ac-
gan until his senior year. He was drafted in the NFL’s sixth round. tors and pop singers. Mark Zuckerberg hasn’t
There are no second acts in America, wrongly observed F. Scott captured the country’s imagination even to
Fitzgerald. But Fitzgerald was an early bloomer: attended Princeton the degree that Steve Jobs, Bill Gates, Henry
and was a literary success in his mid-20s. But that was his peak. By Ford and Thomas Edison did.
his 30s Fitzgerald was spiraling down. One imagines he met all kinds Why is that? My theory is that today’s tech-
of late bloomers and second acts who were on their way up. He died nology business heroes are both so freakishly
a bitter man at age 44, the same age that Raymond Chandler began smart and young that they don’t inspire the
to write detective stories. Chandler was 51 in 1939, the year his first rest of us. In fact, they intimidate the rest of
book, The Big Sleep, was published. us. It’s worth asking why. My guess: For dec-
ades Silicon Valley had among its role models
ALGORITHMIC VALLEY REPLACES SILICON VALLEY late bloomers and tinkerers. For instance, Bill
I find these stories fascinating and encouraging. More than other Hewlett barely got into college; Steve Jobs
advanced countries, the U.S. accommodates the late bloomer. Or at and Bill Gates dropped out of college; Andy
least we always used to. But I fear the U.S. is trending the wrong way. Grove went to City College of New York.
Ascendant in our culture today is the early-bloomer hero. The story Today a poisonous idea has taken root in
line is almost a cliché now: The prodigy who aces the SATs, graduates Silicon Valley. It’s this: If you didn’t score
from Stanford at 20, starts a company, raises millions of dollars and 800 on your math SATs and didn’t get into
sells the thing to Google or Facebook for billions two years later. Harvard, Stanford, Caltech or MIT, you don’t
We’re right to celebrate early success. We at FORBES do this in belong. You’re not one of the elite. Sure, you
our annual 30 Under 30 issue and at our wildly successful Under 30 might start tomorrow’s billion-dollar com-
conferences. But the unintended result is that the late bloomer is pany, but the odds are so long that the VCs
THOMAS KUHLENBECK FOR FORBES

getting crowded out. He/she is vanishing in the American imagina- won’t fund you.
tion, especially with regard to business and, in particular, technology. Silicon Valley has morphed into Algorith-
America is in danger of losing a valuable narrative about itself, and mic Valley, which means if you didn’t hit that
perfect SAT score, forget it. Is that a good
RICH KARLGAARD IS THE PUBLISHER AT FORBES. HIS LATEST BOOK, THE SOFT EDGE: WHERE GREAT COMPANIES
FIND LASTING SUCCESS, CAME OUT IN APRIL. FOR HIS PAST COLUMNS AND BLOGS VISIT OUR WEBSITE message to be sending if our goal is to raise
AT WWW.FORBES.COM/KARLGAARD.
STEM fluency? F
32 | FORBES MARCH 2, 2015
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THOUGHT LEADERS
PAUL JOHNSON // CURRENT EVENTS

OBAMA: BAD BUT LUCKY


THERE’S NO SUCH THING as jus- a President with a touch of luck, whose nod
tice in politics. Or so it would seem. is worth having. Look for a rapprochement
Take the case of Barack Obama. By between Mr. Obama and Mrs. Clinton in
any standards he’s been a bad Presi- 2015. In a few short weeks the odds of a GOP
dent—idle, muddled, contradictory victory in 2016 have changed to a close-run
and weak. His one major achievement, contest, with Mrs. Clinton—if she can secure
ObamaCare, is likely to prove costly the Democratic nomination—well-placed.
and inefficient. He has neglected U.S.
defense and allowed Vladimir Putin LEAD TO TAKE THE LEAD
to strut around the world stage almost What are the Republicans to do? Hillary Clin-
unopposed. Obama’s Administration is ton has a head start on anyone they put up.
crowded with enemies of business. If it What they ought to do, given their domination
has an ideology, it’s watered-down socialism. Obama has done noth- of Congress, is take the lead in a worldwide
ing positive for the economy, and many of his decisions have been campaign to fight Muslim fundamentalism,
discouraging and obstructive to private enterprise. something Obama has conspicuously failed to
Yet what’s happened? As Obama enters the last quarter of his eight- do. Given the U.S.’ enormous military capabili-
year presidency, all the indicators show the U.S. economy to be in the ties, especially in air power, its efforts to con-
green, whereas Europe, except for Britain, is in the doldrums. Even Chi- tain ISIS have been feeble. Much of the actual
na’s boom is slowing fast. U.S. job creation is tremendous. Unemployment fighting has been left to the Kurds, who have
is down. People feel richer. Investment is high. Inflation is low. As things responded magnificently. But Obama has given
stand, the U.S. seems to be entering one of its most promising phases. them little encouragement. ISIS has flourished
Fracking, in which America leads the world, has completely trans- not because of its intrinsic qualities and ap-
formed the energy market and will soon take the U.S. from being a huge peal but because of the West’s policy vacuum.
importer to a net exporter, ensuring cheap domestic fuel. All of Amer- People in Europe are frightened by the way
ica’s critics and enemies, especially Russia, Venezuela and Iran, have in which the war against Islamic terrorism is
been badly hit by the collapse in oil prices. Venezuela, which had been being lost through lack of leadership. The only
subsidizing opponents of the U.S. all over Latin America, is close to star- international figure who provides leadership
vation. Iran, which has defied the West’s economic sanctions to continue in both word and deed is Prime Minister
its efforts in making nuclear bombs, is likely to run out of funds this year. Benjamin Netanyahu of Israel. Increasingly,
And Russia, once the world’s biggest exporter of oil and gas, is watching European Jews who are in a position to
its economy collapse because of the energy market’s transformation. change their location—especially those in
Mr. Obama has contributed absolutely nothing to these remark- France—are moving to Israel, which is re-
able and welcome events. In fact, he’s even attempted to obstruct the garded not so much as safe as resolute. It has a
fracking boom. Left to himself, Obama would probably have struck a sophisticated range of tactical nuclear weap-
deal with Putin and lifted the sanctions on Russia. ons and is quite prepared to use them, if nec-
So as things stand, the President has been handed a sort of victory essary. Of course, this wouldn’t be necessary
on a plate, as he’s bound to get credit for the improvement in the U.S.’ if the U.S. were doing its job. But a Republican
fortunes. Congress could provide a kind of leadership
Obama’s calamitous defeat in the last midterm elections already substitute. Nothing can entirely take the place
THOMAS KUHLENBECK FOR FORBES

seems a long time ago. It wasn’t overwhelming enough to prevent his of a strong and clear-sighted President in the
vetoing any congressional move he finds insupportable. He now stands a White House, but in this needy and disturbed
fair chance of being able to whip up popular support for a White House world, a determined combination of Repub-
policy of legislative obstruction. From being a person whom Democrat- lican senators and congressmen would be a
ic candidates wanted to keep away from their campaigns he’s become hopeful sign. May it soon emerge. F
PAUL JOHNSON, EMINENT BRITISH HISTORIAN AND AUTHOR; DAVID MALPASS, GLOBAL ECONOMIST, PRESIDENT OF ENCIMA GLOBAL LLC; AMITY SHLAES, WHO SERVES AS PRESIDENTIAL
SCHOLAR AT KINGS COLLEGE AND CHAIRS THE COOLIDGE FOUNDATION BOARD; AND LEE KUAN YEW, FORMER PRIME MINISTER OF SINGAPORE, ROTATE IN WRITING THIS COLUMN. TO SEE
PAST CURRENT EVENTS COLUMNS, VISIT OUR WEBSITE AT WWW.FORBES.COM/CURRENTEVENTS.

34 | FORBES MARCH 2, 2015


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THOUGHT LEADERS
AVIK ROY // THE APOTHECARY

AN ECONOMY REVIVED BY THE GOP


IN JANUARY, in his annual State of the University of Pennsylvania—finds a strong
the Union address, President Obama relationship between the drop in unemployment
bragged that “our economy is grow- benefits and the rise in employment.
ing and creating jobs at the fastest pace The authors compared neighboring counties
since 1999.” It’s great news, to be sure. in adjacent states, and found that states that had
But according to a new paper from the the shortest duration of unemployment benefits
National Bureau of Economic Research, experienced the strongest labor market recovery.
the recent improvement in the labor “A 1% drop in benefit duration leads to a statisti-
market may be due to a policy change cally significant increase of employment. … 1.8
that Obama adamantly opposed: ending million jobs were created in 2014 due to the ben-
extended unemployment benefits. efit cut.” Those 1.8 million jobs represent 1.2% of
Here’s the history. In the aftermath of the U.S. labor force: correlating quite closely to
the financial crisis Congress passed the Emergency Unemployment Com- the drop in unemployment over the past year.
pensation Act of 2008. The new law dramatically extended the duration of The new paper is a follow-up to earlier re-
unemployment benefits, from a typical length of 26 weeks to as many as 39. search from the same authors about the labor
The American Recovery & Reinvestment Act of 2009, commonly market in North Carolina. When North Caro-
known as the “stimulus bill,” further expanded these benefits, such lina shut down its extended unemployment
that by the end of 2013 the average duration of unemployment benefits benefits program in July 2013, “robust employ-
exceeded one year. Furthermore, ARRA expanded eligibility for unem- ment growth” followed.
ployment benefits to part-time workers and exempted the first $2,400 What can we learn from all this? Nothing we
of unemployment benefits from taxation. Classical economists criticized shouldn’t have already known. If you pay people
these expansions, arguing that they would encourage more people to stay to stay unemployed, more people will stay un-
out of the workforce. But President Obama pushed for the continuation— employed. In order to recruit workers who have
and expansion—of extended benefits throughout his first term. the option of remaining on unemployment ben-
Finally, after years of slack labor markets, in July 2013 the unemploy- efits, companies have to increase their wages.
Higher wages, in turn, make it costlier
and harder to hire new workers, leading
OBAMA TOUTS A RISE IN EMPLOYMENT to fewer of them.
CAUSED BY A POLICY HE OPPOSED It’s a problem that has been en-
demic under President Obama. The
ment rate fell below 7.5%. In December 2013 the House of Representa- Affordable Care Act, Obama’s signature health
tives—now controlled by Republicans—allowed the benefit extension to care law, heavily discourages hiring. In Febru-
expire, arguing that the crisis of the Great Recession had passed. ary the Congressional Budget Office predicted
Obama blasted the House’s decision: “For many of their constituents that ObamaCare would cause “a decline in
who are unemployed through no fault of their own, [Republicans] will the number of full-time-equivalent workers
leave them with no income at all. And denying families that security is of about 2.0 million in 2017, rising to about 2.5
just plain cruel.” The President’s Council of Economic Advisers and the million in 2024.”
Department of Labor predicted that the expiration of extended benefits Presidents have been getting blamed—and
would reduce employment by 240,000; the Congressional Budget Office taking credit—for the nation’s economic per-
estimated that employment would be lower by 200,000. formance for a very long time. So it’s natural
THOMAS KUHLENBECK FOR FORBES

But the predicted apocalypse never occurred. Instead, the unemploy- that President Obama would want to boast
ment rate dropped from 6.7% in December 2013 to 5.6% a year later, despite about signs that the U.S. employment picture is
a drop in the growth of aggregate productivity. The new NBER paper—au- improving. But it may in fact be Republicans in
thored by economists at the University of Oslo, Stockholm University and Congress who deserve bragging rights, and free-
market economics that deserves vindication. F
AVIK ROY IS FORBES’ OPINION EDITOR AND A SENIOR FELLOW AT THE MANHATTAN INSTITUTE.

36 | FORBES MARCH 2, 2015


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STRATEGIES
Verticals March 2, 2015 NATURAL GAS DETECTIVE 42
TECHNOLOGY
THE REAL MINORITY REPORT 46
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ENTREPRENEURS
GARBAGE-PRENEURS 52
For Ace
Hardware the
color of money
is eggshell white,
its most popular
paint. In all,
interior paint is
the hardware
co-op’s bestseller,
accounting
for nearly $110
million in annual
sales, followed by
LED lightbulbs
and birdseed.
PAGE 40

MARCH 2, 2015 FORBES | 39


STRATEGIES
RETAIL

and model of bathroom faucets installed in


every condo complex and apartment building

Safety in Numbers within a short drive of all his Chicago stores


—a boon in attracting fellow small business
owners, like local plumbers, to Ace. “It’s a
With Ace Hardware’s distinctive jingle and big deal,” says Venhuizen, a 22-year company
neighborly service, members of its national co-op veteran. “It’s a differentiator. And I’ll tell you,
are taking on the big boxes by sticking together. it’s exceedingly hard.”
Jeremy knows his stores’ strengths. He
BY CLARE O’CONNOR
doesn’t sell lumber. For that you can go to

W
hen Jeremy Melnick’s
grandfather opened his Mr. Helpful: CEO John
first Ace Hardware store Venhuizen in one of Ace’s
Chicago-area locations.
along Chicago’s ritzy
Gold Coast in 1950, there
wasn’t a whole lot of competition. Wal-Mart?
An Arkansas five-and-dime. Lowe’s was two
stores in North Carolina. Home Depot was
still 29 years away from opening its first loca-
tion. Amazon CEO Jeff Bezos was 14 years
shy of being born.
The Melnicks—Jeremy, 43, and dad Les,
67—own 6 of the 4,794 Ace Hardware stores
that make up the country’s largest retail
cooperative outside the grocery sector. As
they’ve expanded their family business-
within-a-business into a local chain, some 20
Home Depots have cropped up along greater
Chicago’s highways and strip malls in the
past two decades, each 100,000 square feet
(versus the Melnicks’ 8,000-square-foot cor-
ner stores). “They surround us,” Jeremy says.
Not that he’s complaining. Despite the
competition, his business is good. Surpris-
ingly good. And so is Ace Hardware’s bottom
line. The Oak Brook, Ill. co-op expects a year-
on-year revenue increase of 13% to about $4.7
billion and a profit boost of 35% when it re-
leases its 2014 annual report in April, follow-
ing eight consecutive quarters of record sales.
The reason for success, explains Ace CEO
John Venhuizen, a charismatic 44-year-old
who speaks with the fervor of a preacher,
is store owners like the Melnicks: entrepre-
neurs with a deep knowledge of their local
market, inventory fine-tuned to a neighbor-
hood’s demographic and the sort of exact-
ing customer service a typical big-box store
with low pay and high employee turnover
just can’t match. Jeremy knows the make

40 | FORBES MARCH 2, 2015


Home Depot or Lowe’s. He does sell what your market share, you have to go out and TRENDING
seems like every kind of lightbulb in pro- steal stores from someone else,” says Jim
duction. When a bulb blows he knows you’d Robisch, senior partner in retail at the Farns- What the 65 million
rather grab a new one from your local Ace worth Group, a home improvement industry Forbes.com users
than navigate the labyrinthine aisles of a consultancy. And if a store is consistently are talking about.
For a deeper dive go to
GIANFILIPPO DE ROSSI/POLARIS/NEWSCOM (RIGHT)

big box or wait in the dark for an Amazon underperforming? “Ace is really strict at
FORBES.COM/STRATEGIES
delivery. “If you want to remodel your house, controlling the integrity of their brand. They
you’ll go to them,” he says. “We’re making have a crew of people who’ll go round and
PERSON
our money $20, $25 at a time.” tear those Ace signs down whether you like it
JEFF SCIORTINO FOR FORBES;

MARY BARRA
The company’s co-op business model or not.” (A spokesperson says stores that fall GM’s CEO faced
means its store owners are its only share- short of standards must remove Ace logos, but daunting challenges
holders. It’s the opposite of a franchise they still have access to Ace’s supply chain.) her first year—and
won. Great Q4 results,
system: Thousands of entrepreneurs like the The company was born in 1924 when four
a recall program that’s
Melnicks band together to boost their col- Chicago-area entrepreneurs decided they working, yummy
lective buying power and could get better deals on inventory by joining dividends for investors
reduce costs. The corporate forces. Ace opened its first warehouse just and even $9,000
structure, with Venhui- prior to the 1929 crash and subsequent eco- bonuses for factory
workers.
zen at the helm since 2013, nomic devastation, its founders capitalizing
exists only to do their bid- on a need for hardware and tools as home-
ding, overseeing 14 regional owners were forced to do their own patching
distribution centers that up and repairing. The company briefly flirted
supply each store with the with converting from a retailer-owned co-op
right mix of $800 Weber to a for-profit corporation during the most
grills and $15 hammers. recent recession in 2007.
When an Ace store “There would have been no change in
opens (or an existing shareholder ownership, only structure,”
hardware outlet converts says Venhuizen. “With the relatively new
to Ace), the owner buys U.S. dividend tax structure, there is a less
$5,000 in shares. He or compelling capital argument to make such
she can purchase any of a conversion now, so we have no existing
the 80,000-odd products plans to do so.”
from the co-op’s ware- Next up, Ace is tackling same-day delivery,
houses, make use of the one of the hottest trends in retail. Tests in
well-known red-and-white 33 stores across six states started on Jan. 26. COMPANY
logo and branding (“The It’s a pretty obvious move, says Venhuizen, WALT DISNEY
helpful place,” its motto since 70% of U.S. households are within a The Frozen phenomenon
shows no signs of letting
promises) and receive divi- 15-minute drive of an Ace store.
go. A new Star Wars
dends based on purchases “I don’t know if you can deliver a grill blasts off this year.
rather than equity. Each with a drone, but our trucks’ll get it there,” he Marvel is still marvelous.
store kicks in for activi- says with a grin. Besides, 60% of Ace’s stores And ESPN remains a
ties that benefit the whole already provide delivery to customers, albeit juggernaut. Can anyone
compete?
co-op, like advertising and in a haphazard way—more like a favor to a
marketing (Ace’s annual ad friend who doesn’t have a car than part of a THING
budget is $100 million). business model. Jeremy Melnick has deliv- SWING PRODUCER
In the past 18 months ered plungers. He’s screwed in lightbulbs. The oil-price plunge
has staggered U.S.
Ace has seen some 144 “They do this already,” says Venhuizen. drillers, but some
stores jump ship from com- “Doesn’t everybody?” see opportunity.
petitors, including a handful Their theory: If OPEC
from its two fellow hard- FINAL THOUGHT collapses, America
ware co-ops, True Value could supplant Saudi
“Cooperation, which is the thing Arabia as the global
and Do It Best. During that
we must strive for today, begins where price setter. 
time just 49 Ace stores have
left the fold. competition leaves off. ”
“In order to increase —FRANKLIN D. ROOSEVELT 

MARCH 2, 2015 FORBES | 41


STRATEGIES
REINVENTING AMERICA

Thriving on Fumes
By creating a better tool for spotting gas leaks from oilfields
and pipelines, tiny Rebellion Photonics got the jump on a
global market no one else could see.
BY CHRISTOPHER HELMAN

Y
ou’d think she’d be happy. detect and stop such emissions. Despite the Smile! Rebellion
When the Environmental downturn in oil and gas prices, business is Photonics’ Robert
Kester and Allison
Protection Agency announced brisk in states that require regular monitor- Sawyer with their
in January its intention to ing of wells and storage tanks, like Penn- hyperspectral video
clamp down on emissions sylvania, Wyoming and Colorado (where camera.

of methane, a potent greenhouse gas that Rebellion was the first service provider
traps 25 times more heat than does carbon officially approved by state regulators). New
dioxide, it was great news for Allison federal rules should be a boon for Rebellion.
Sawyer. Her company, Rebellion Photonics, But happy she is not. “I’d prefer not to be
is the world’s first (and only) maker of used because we’re required,” says Sawyer,
hyperspectral video cameras—the best way 30, who founded the company five years
to detect fugitive emissions of methane and ago. “Also, it’s not necessary. What we’re
other volatile gases escaping from oil- and catching is product lost, revenue lost. It
gas fields and petrochemical refineries. makes economic sense to use us, regulation
The invisible, odorless gas is the primary or no regulation.”
constituent of the natural gas burned to gen- That sentiment—part straight-talking sci-
erate 30% of America’s electricity. Among entist, part free-market idealist—pretty much
MICHAEL THAD CARTER FOR FORBES

other objectives, the EPA has a goal of re- sums up Sawyer. In 2009 she was at Rice
ducing methane emissions from oil and gas University working toward her M.B.A. She al-
operations to 60% of 2012 levels in the next ready had a master’s degree in applied phys-
decade. Houston-based Rebellion is already ics and was interning at the Houston Tech-
working for giants like Chevron, BP and the nology Center, a startup incubator. Inspired
natural gas driller Southwestern Energy to by a family of entrepreneurs, Sawyer knew

42 | FORBES MARCH 2, 2015


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STRATEGIES REINVENTING AMERICA

she wanted to be her own (Sawyer also won a spot on STAT SHEET
boss. One day Robert Kester the 2014 FORBES 30 Under
walked in. He was a Ph.D. 30 list.)
candidate in bioengineering That all helped them
2014’S REAL BEST
and had just published his bootstrap the company while
PICTURES
Let the Oscars laud
breakthrough research in the developing what’s come to
artistic achievement—
field of hyperspectral imag- be their primary offering: a these five films were tops
ing, the kind of technology 50-pound, foot-tall, truck- in both critical acclaim
that astronomers use to find mounted, wide-field, hyper- and box office. The Lego
seas of liquid methane on spectral video camera. Rebel- Movie had the highest
Rotten Tomatoes score
the moons of Saturn. Hyper- Visible invisible: Rebellion’s lion mounts its cameras on
of the top-grossing
spectral imaging works on cameras make gas leaks easy to see. 35-foot extendable arms, so movies and the fourth-
the premise that every type of they can drive to refiner- biggest ticket sales. Yet
gas absorbs and reflects light in a unique way. ies and oil- and gas fields and survey with just one measly Oscar
Until Kester’s work this imaging could be bird’s-eye views for about $250 a visit. With nod! Is there no justice in
Hollywood?
done only in snapshots; he patented the first 487,000 gas wells and 1.6 million miles of
hyperspectral video camera. natural gas pipelines in the U.S., the size
But Kester was using it to examine things of the potential market is staggering. Since
through a microscope. Sawyer wondered if even small leaks can cost thousands of dol-
you could turn it around. “I asked if it could lars in annual revenue, customers have been
be used for wide-field imaging,” she recalls. quick to line up.
“He said, ‘Yeah,’ and my brain exploded.” A year ago, to make the leap from one
The Lego Movie
Myriad applications sprang to mind: Farmers truck to an entire fleet, Rebellion took $10.4 BOX OFFICE RANK
could determine the health of crops. Police million in funding from San Francisco-based 4
could monitor for chemical or biological at- Tinicum Capital Partners, a deal that valued EARNINGS
$258 mil
tacks. And, of course, the oil, gas and chemi- the company—still unprofitable but clock- ROTTEN TOMATOES
cal industries could detect leaks invisible to ing some $4 million a year in revenues—at 96%
the naked eye. “Holy Mother, do you know more than $30 million. Wasn’t the $1.3 bil-
what you’ve invented?” she asked the non- lion private equity group nervous about the How to Train
Your Dragon 2
plussed Kester. young age of the founders? “No,” says Tini- BOX OFFICE RANK
The existing standard for image-based cum partner Skip Zedlitz, “because they had 17
gas detection was unreliable: single-frame done such a good job building something EARNINGS
$177 mil
cameras or handheld infrared cameras that that had never been done before.” ROTTEN TOMATOES
required the user to climb all over equipment So where does Rebellion go from here? 92%
and storage tanks in order to pinpoint leaks. In December it received a $4.3 million grant
The biggest competitor was $4.3 billion Flir from the Department of Energy’s Advanced Guardians of
the Galaxy
Systems, a maker of light-intensifying and in- Research Projects Agency to build a por- BOX OFFICE RANK
frared cameras. Even then infrared discerns table miniature spectrometer. It’s starting to 2
only hot from cold. A plume of gas seen that market services to oil companies overseas. Of EARNINGS
$333 mil
way might be methane—or harmless steam. course, there’s always the chance an oilfield ROTTEN TOMATOES
“Until Rebellion, emissions monitoring was service giant like Schlumberger or Hallibur- 91%
really expensive, really complicated and ton will make them the proverbial offer they
totally inaccurate,” says Sawyer. “You would can’t refuse. When a potential new customer X-Men: Days of
Future Past
get a lot of false positives.” in North Dakota’s Bakken oilfields recently BOX OFFICE RANK
It didn’t take her long to write a business delayed a contract because of plunging oil 9
plan and get Kester on board. In June 2010 prices, Sawyer was unconcerned. The inexo- EARNINGS
$234 mil
they started working on Rebellion full-time. rable trend toward more state and federal
GIANFILIPPO DE ROSSI / POLARIS/NEWSCOM

ROTTEN TOMATOES
They won $125,000 from business plan com- regulations on methane monitoring will help 91%
petitions and scored a $1 million U.S. Air Force Rebellion for years to come—whether she
contract to mount the camera on drones. likes it or not. Big Hero 6
BOX OFFICE RANK
10
EARNINGS
FINAL THOUGHT $218 mil
ROTTEN TOMATOES
“The unseen enemy is the most fearsome.” —GEORGE R.R. MARTIN 90%

44 | FORBES MARCH 2, 2015


JohnCarlo
Born 12 weeks early,
surviving twin.

marchforbabies.org
© 2015 March of Dimes Foundation
TECHNOLOGY
BIG DATA

Server And
Protect
PredPol turned an earthquake
prediction model and years
of policing data into a map of
crime that’s about to take place.
BY ELLEN HUET

T
wo or three times a day in al-
most 60 cities across America,
thousands of police officers line
up for roll call at the begin-
ning of their shifts. They’re
handed a marked-up map of their beat and
told: Between calls go to the little red boxes,
each about half the size of a city block. The
department’s crime analysts didn’t make
these maps. They’re produced by PredPol,
a “predictive policing” software program
that shovels historical crime data through a
proprietary algorithm and spits out the 10
to 20 spots most likely to see crime over the
next shift. If patrol officers spend only 5%
to 15% of their shift in those boxes, PredPol
says, they’ll stop more crime than they would
using their own knowledge.
Police departments pay around $10,000 said they planned to implement or increase PredPol CEO Larry
Samuels rolls into the
to $150,000 a year to gain access to these red use of predictive policing technology in the red box with two of
boxes, having heard that other departments next two to five years. IBM, Palantir and Modesto’s finest.
that do so have seen double-digit drops in Motorola all dabble in it, but PredPol, a
crime. It’s impossible to know if PredPol pre- three-year-old startup in Santa Cruz, Calif., is
vents crime, since crime rates fluctuate, or to among the first firms to specialize in pre-
know the details of the software’s black-box dictive policing. It has raised $3.7 million in
algorithm, but budget-strapped police chiefs venture funding and a year ago hired a CEO,
don’t care. Santa Cruz saw burglaries drop by Larry Samuels, who had stints at Atari and
11% and robberies by 27% in the first year of Creative Labs. He expects revenue of $5 mil-
using the software. “I’m not really concerned lion to $6 million in 2015, which he says will
about the formulas,” said Atlanta Police Chief likely be PredPol’s “breakout year,” but hints
George Turner, who implemented the soft- that if the company hooks some big fish, he
ware in July 2013. “That’s not my business. hopes to triple that.
My business is to fight crime in my city.” PredPol is being used in almost 60 depart-
Predictive policing is hot stuff: In a 2012 ments, the biggest of which are Los Angeles
survey of almost 200 police agencies 70% and Atlanta, but Samuels is eyeing more. “My

46 | FORBES MARCH 2, 2015


goal by the end of 2015 or a variable factor (like another earthquake, TRENDING
is to have the majority which causes aftershocks nearby, or a gang
of large North American shooting, which triggers retaliatory shootings What the 65 million
metro areas using this,” in the same neighborhood). Each factor can Forbes.com users
Samuels says. “The mar- be boiled down to the usual rate it triggers are talking about.
For a deeper dive go to
ket is ready.” other crimes. For example, in Long Beach a
FORBES.COM/TECHNOLOGY
The public may be home burglary instantly puts any home within
less so, given already a mile at heightened risk, with the house
COMPANY
edgy relations with po- next door at the highest risk. “A lot of human APPLE
lice. PredPol has had to behavior can be explained with very simple Biggest. Quarter. Ever.
educate people on what mathematical models,” says Brantingham. In three months Apple
the software doesn’t do. PredPol is sexy but not quite proven. grossed $74.6 billion
(more than Google’s
It’s not sci-fi’s Minority Atlanta deployed it in two of six precincts
entire year) with
Report, in which police and saw drops, compared with flat or higher $18 billion in profit,
target specific criminals crime rates in the others. But the cops in smashing Exxon Mobil’s
based on their intent. those precincts may have acted differently 2012 Q2 record of
Instead, it focuses on because they knew they were being given a $15.9 billion.
location, using time, fancy new tool. Brantingham hopes to get
place and type of crime into a peer-reviewed journal PredPol’s most
to unearth patterns. For rigorous study, in Los Angeles, which showed
young cops it’s a faster that it accurately predicted twice as many
education on the streets crimes as LAPD’s analysts did. An indepen-
they’re supposed to dent RAND Corp. study of a non-PredPol
protect. “We have a very predictive policing effort in Shreveport, La.
young department, and found it had no effect on crime reduction, in IDEA
we have to be strategic part because cops stopped following the pro- EYE TRACKING
This user interface for
about where we spend gram after the first few months. manipulating mobile
our time,” says Modesto Even if PredPol reduces crime, it raises devices is moving
Police Captain Rick qualms about how it’s applied. Louisiana State beyond gimmick, but
Armendariz. Law en- criminologist Peter Scharf worries that the we’d be happy merely
forcement agencies are red-box designation might cause young cops to play Fruit Ninja with
our baby blues.
exploiting the analysis to exaggerate a neighborhood’s dan-
in creative ways. For a gers. “I go in this box and everybody’s
while a Los Angeles di- Michael Brown,” he says. Joel Caplan,
vision tweeted out daily a Rutgers criminologist, says predictive
hot spots so citizens software would be better if it helped
could keep an eye on fix a crime spot’s underlying problems.
them. Modesto parks its “armadillo”—an ar- Others worry that police chiefs and city
mored truck with four live-feed cameras—in governments will rush into the embrace
one of its PredPol red boxes each day. of Big Data without understanding how
ALISSA HANKINSON / GETTY IMAGES (BOTTOM RIGHT)

PredPol’s algorithm was born when Jeff it works. “It’s such a seductive idea
Brantingham and his cofounder, George that you could have a computer pre-
Mohler, were working at UCLA poring over dict crime,” says University of the District of PERSON
TOM WHEELER
large data sets in the late 2000s. They saw Columbia law professor Andrew Ferguson. The FCC chairman is
that criminal activity and seismic activity Brantingham acknowledges the concerns
ETHAN PINES FOR FORBES;

a veritable Catherine
follow surprisingly similar patterns. Each but ultimately trusts a cop’s intuition. “We wheel of change: He’s
new event—an earthquake or a crime—can be tell officers, ‘It’s up to you to use your knowl- now calling for strict
traced back to one of two causes: a fixed fac- edge, skills, experience and training in the regulation of the Web
and may overrule
tor (like an earthquake fault or a rowdy bar) most appropriate way to stop crime.’” state laws that restrict
city governments
FINAL THOUGHT from building faster
municipal networks.
“The idea that the future is unpredictable is undermined every day
by the ease with which the past is explained.” —DANIEL KAHNEMAN

MARCH 2, 2015 FORBES | 47


TECHNOLOGY
30 UNDER 30

JONATHAN KOZOWYK FOR FORBES


The Backup Plan
Austin McChord makes big money selling peace of mind to small
businesses hoping to avoid the catastrophe of data loss.
BY STEVEN BERTONI

A
ustin McChord offers up a Norwalk, Conn., Datto deals in the coma-in- Datto founder McChord:
“We can disrupt the
smoking cup of liquid nitrogen. ducing business of information recovery. Just biggest of the big:
“Dip your finger in it. It boils as Amazon Web Services provides any size Symantec, HP, EMC.”
off right away.” We dip, and business with cheap, all-you-can-eat com-
it does. “We bought a tank to puting power via the cloud, Datto’s subscrip-
make ice cream, but we do all kinds of weird, tion service will revive a company’s network
random stuff—we’ve frozen a few computers, instantly when things go on the fritz. While
and they just shatter.” He dumps the liquid the Snapchats and WhatsApps get hype for
nitrogen on the floor and guides me through attracting hundreds of millions of users,
the rest of his geek heaven of an office: the McChord is quietly doing the same trick with
Times Square-style LED wall for Super revenue. Next to the videogames, screens
Nintendo tournaments, the collection of flash daily sales figures down to the penny.
homemade drones and Japanese sleep pods In 2014 McChord did just under $100 mil-
(“Comfortable for one person but too small lion in revenue—up 32-fold since 2010. Today
for two”). Datto’s 400-plus employees support
Despite the tech swag, the 29-year-old 5 million clients worldwide, including a
CEO of data backup company Datto is far handful in Greenland.
from Silicon Valley’s glitz—3,000 miles. Bigger firms have taken notice. In early 2013
Headquartered in a drab office park in a security firm—McChord won’t say which—of-

48 | FORBES MARCH 2, 2015


THE INTERNET OF EVERYTHING
presents

the last traffic jam


We’re building the Internet of Everything for connected cities. So smarter cars
and roads equipped with sensors will use our highly secure cloud to keep traffic moving.
It’s a greener, safer, easier future. Where the roads always flow.
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TECHNOLOGY 30 UNDER 30
GADGETS
fered $100 million for the company. McChord, synch data between two computers (think
WE LOVE
who owned 100% of Datto at the time, passed. Dropbox without the Cloud). He racked up
He wasn’t done. Instead he raised $25 million $80,000 in credit card debt to buy two booths
from General Catalyst Partners in the fall of at the big CES trade show in Las Vegas. A
2013. The deal brought Paul Sagan (former CEO distributor for Best Buy ordered 2,000
of Akamai) and Steve Herrod (former CTO of devices—on consignment. McChord
VMware) onto its board to help turn scrappy was still building them by hand and
Datto into a billion-dollar business. “We can was awash in debt. “I wasn’t sleep-
disrupt the biggest of the big—Symantec, HP, ing. I was having chest pains,” he
EMC,” says McChord. “We’re esoteric and says. “I thought I had a heart prob-
crazy, but that’s the goal.” lem, but it was all in my head.”
McChord got where he is by giving small Unable to fulfill the order, Mc-
businesses (law firms, engineering shops, Chord simply stopped chasing the
dentists’ offices) the type of bulletproof consumer market and searched for a busi-
backup that was available only to big corpo- ness product he could sell for recurring cash
SONIC BOOM
When you’re on the
rations. The hardware and software built by revenue. He found a Zenith InfoTech backup
road and in dire need
Datto can capture a snapshot of a company’s system that ran Windows and built a bet- of Led Zeppelin II to
entire IT system as often as every five min- ter version that ran on Linux. Marketing calm your nerves at
utes. Since the system sits on the customer’s to millions of small businesses is messy, so the end of a harried
premises and in the cloud, the company can McChord focused on a few resellers to hawk day, tinny sound just
won’t do. Logitech’s
get back up and running from anywhere as the new product. By the end of 2009 he was
UE Mini Boom ($99.99;
long as it has an Internet connection. Datto doing $70,000 in monthly sales and hit a total logitech.com) sets
won’t comment on pricing, but a partner of $3 million for 2010. the standard for
says it costs about $350 a month and $2,800 Then disaster struck. McChord released a portable, minuscule-
up front for one terabyte of data. When the new product called Aurora that could restore but-powerful Bluetooth
speakers. Small enough
massive tornado tore through Joplin, Mo. in down systems in about an hour. It worked
to fit in the palm of
2011, Datto instantly retrieved local hospitals’ great on new computers but crashed old your hand, it kicks
access to medical records. After Hurricane ones. Every sale created a customer service out crisp sound that
Sandy swamped the system of New York problem. He had to design a new product easily fills a hotel
hedge fund Richmond Hill, Datto had it back from scratch while selling the flawed system room (or camper van,
if you’re roughing it).
in the market in minutes. “Austin told small to meet payroll. A few months later he re-
No separate app or
companies, ‘Just pay me a subscription, and leased Siris, which cut recovery time to six software is needed. It
I’ll take care of all the complexity,’” says Gen- seconds. Customers who had bought the bad puts out a surprising
eral Catalyst’s Sagan. “He reached a market system got a free upgrade. Sales hit $9 mil- amount of bass, too,
no one had talked to before.” lion in 2011 and $25 million in 2012. for something so
little. Stow it in your
McChord has always been a tinkerer. At The $100 million buyout offer came at
carry-on: You are now
middle school in Newtown, Conn. he con- McChord in early 2013. He was torn. “It was free to—what’s the
structed Rube Goldberg machines. McChord pretty clear their plan was to dismantle the phrase?—ramble on.
built his high school’s video-editing software company. I didn’t want to see people laid off,”
and repaired TVs he dug up from the town he says. “I passed. I have a rare opportunity, and
dump. He studied electrical engineering at the it seemed funny not to follow it all the way.”
Rochester Institute of Technology but found That means going after more forms of
it too easy and switched to bioinformatics, a data. In December McChord purchased
mash-up of computer science and biology. Backupify, a startup in Cambridge, Mass. that
In the summer of 2007 McChord started backs up data in cloud apps such as Sales-
making his own data backup devices, hot- force and Google Apps. “You don’t have to
gluing Linksys boards and writing software build a Snapchat to be a billionaire,” says Mc-
in the basement of his dad’s engineering firm. Chord. “Instead you go after a product, do it
A 2008 article in Gizmodo attracted the first 30% better, 10% cheaper and build an incred-
customers. Next he built a system that lets you ibly valuable business.”

FINAL THOUGHT

“Plan for what is difficult while it is easy; do what is great while it is small.” —SUN TZU 

50 | FORBES MARCH 2, 2015


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March 11-12, 2015 | Chicago, IL

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Partners
meeting on his second day as CEO was that
ENTREPRENEURS Trex’s abysmal debt-to-earnings ratio violated
its bank covenants—putting it on the precipice
TURNAROUND of bankruptcy. He hustled to meet face-to-face
with the president of one bank and issued a
challenge: “I said, ‘Do you want to run the
place, or do you want me to run it?’”
Trex’s creditors deferred to Kaplan’s 30
years of manufacturing experience, a decision
that likely saved the company. Sales aren’t that
much higher than when Kaplan took over—
$381 million over the past four quarters—but
it now shows a profit of $51 million. Its debt
load? Zero. And Wall Street has taken notice:
Though Trex stock plummeted 83% between
2005 and 2007, it’s up more than 900% since
Kaplan came aboard. “It’s the most success-
ful, extensive turnaround of a company that
I’ve seen in the building materials space,” says
Trey Grooms, managing director of equity
research at Stephens.
So what happened? It’s a classic case of
focus. Trex lost it, foolishly thinking that a
virtual monopoly meant it had no pressure to
maintain quality. Kaplan has used culture and
the product itself to get it back.
Trex, after all, basically invented synthetic
decking. In the ’90s a bunch of Mobil Oil
engineers figured out how to make decking
Cleaning house: out of plastic waste and wood scraps, creat-
“I didn’t think ing a composite that wouldn’t rot or splinter.
a company in
a death spiral
Today Trex claims its decking will last 25
needed a senior years without staining or fading, versus pres-
executive in sure-treated lumber, which requires yearly
charge of giving
away money.”
maintenance and lasts 7 years on average.
Sizing up the outdoor decking indus-
try—then a $2 billion market, now $7 bil-
lion—four Mobil executives saw the larger
Garbage Into Gold opportunity, buying the unit from the
parent company in 1996 and then rapidly
Trex had the benefits of a monopoly—along with the expanding. Between 1998 and 2004 sales
surged from $47 million to $254 million—
arrogance that almost killed it. Ron Kaplan saved the
and after the company went public in 1999
synthetic-decking pioneer by treating it like a startup. the stock raced up in lockstep.
BY BRIAN SOLOMON Controlling 90% of their market, they

W
hen Ron Kaplan took attempted to goose margins further. Big mis-
over as CEO of Trex in take. If you visit Trex’s headquarters in Win-
January 2008, he knew chester, Va., in the foothills of the Shenando-
the composite wood ah Mountains, it’s immediately obvious what
decking company was in its key component is: trash. Giant bales of
STEPHEN VOSS FOR FORBES

a death spiral of quality problems, falling sales plastic bags arrive by the truckload every day,
and widening losses. The previous year Trex complete with food detritus and supermar-
had lost $76 million on $329 million in sales ket logos. That garbage is spun into gold: The
and its debt had ballooned to $134 million. bales of plastic are heated and combined with
What Kaplan didn’t know until a board industrial wood shavings to make the com-

52 | FORBES MARCH 2, 2015


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JOTVSFE8$4
ENTREPRENEURS TURNAROUND
GO
posite deck boards. But in 2003 management just managers. Automation improvements CONSIDER
tried to lower costs by buying lower grades at the factories eliminated another 30% of
STOP
of plastic—yes, there’s a quality hierarchy in full-time manufacturing workers in 2008.
retail bags—and the results were dismal. The survivors were incentivized: Managers
Customers saw their new deck surfaces earn bonuses based on the company’s finan-
TO MARKET,
deteriorate, and they started filing lawsuits cial performance, while factory workers can
TO MARKET
Want in on the listings
(Trex settled in 2010 and still pays to replace boost their income by up to 15% by hitting action? IPO ETF manager
defective decks). New competitors like targets for production costs and returns. Renaissance Capital
Fiberon and AZEK stepped in, introducing The culture now reset, Kaplan went to the looks at what recent
more durable products. Even after two mem- core of his problem: the product. To regain industry performance
bers of Trex’s original management team market share, he introduced a new line with (through Feb. 5) augurs
for the rest of 2015.
came out of retirement to try to fix opera- the kind of innovation that people had origi-
tions, the damage was done. Trex’s market nally associated with Trex. The Transcend
share had fallen to 30%, and the cure proved line was the first major composite board en- HEALTH CARE
as bad as the disease, as a decision to swell cased in a hard shell. As a result the product Since 2013 the sector
the labor force to monitor quality by hand was both more resilient and more woodlike has had 111 offerings,
topping tech. With
also swelled costs, throwing the company in appearance.
growing investor
into a loss. The tougher exterior enabled the compa- interest in genetic
Enter Kaplan. “We knew almost immedi- ny to offer a 25-year warranty, which has al- immunotherapy,
ately Ron was the guy,” says Frank Merlotti lowed it to charge more. Where Trex boards health care IPOs
Jr., Trex board member since 2006. “He had previously sold for $2 to $3 per foot, prices pulled in $9.1 billion in
the last year, with an
a certain confidence and calmness—a guy now reach $3.75. “Millennials aren’t like the
average return of 32%.
who knows what he wants and can get every- Baby Boomer generation,” says Adam Zamba-
one marching in the same direction.” nini, vice president of marketing. “They don’t
Raised in a family of military veterans and want the maintenance.” CONSUMER
armed with a Wharton M.B.A., Kaplan had Even with higher-price products, Trex is GoPro and Shake
Shack drew attention,
spent 26 years at Harsco, where he managed back to owning 40% of the composite mar- boosting sector returns
factories for propane tanks and high-pressure ket. And Kaplan intends to expand beyond to 43%—yet there were
cylinders and demonstrated a certain cold- catering to the beer-and-grill crowd. “One only 15 such deals in
heartedness, culling employees as needed. way to look at Trex is as a decking and rail- the last 12 months.
His take-no-prisoners approach proved ing company,” says Kaplan. “Another way But more consumer
spending money
shock therapy for Trex’s collegial culture. On to look at it is as a recycling and extrusion “means higher post-IPO
a Friday early in his tenure he pledged not company.” valuations” for deals
to alter the lax dress code—before noting he In order to get the plastic it needs, Trex that do happen, says
would be making final decisions the follow- has to accept all of the polyethylene that re- Renaissance principal
ing Monday about which executives deserved tailers like Wal-Mart send. That means it has Kathleen Smith.
to stay. “Neiman Marcus had its best week- a lot of surplus. Rather than resell it at cost,
end ever,” he jokes. Kaplan is developing other products, start- ENERGY
The executives should’ve saved their ing with tiny polyethylene pellets that can re- Surprised? With 30
money. He axed 10 of his 11 vice presidents, place virgin resin for plastic producers. offerings in 2014,
the industry had its
along with around 30 managers, including Why get into plastic commodities? Kaplan
busiest year since
one whose entire job was overseeing chari- thinks his formula can work in any number of 2007, but returns were
table donations. “I didn’t think a company areas. This seems to risk a distraction similar down 6%. At least
in a death spiral needed a senior executive to the one that prompted Trex’s collapse in your fill-up is cheap. 
in charge of giving away money,” shrugs the first place. But such are the perks of being
Kaplan, a gruff 63-year-old with a deliberate, the company savior: When you’re playing with
almost robotic gait. Those executive offices house money—and the balance sheet remains
have been sublet to an X-ray imaging center debt-free—investors are willing to let you roll
and a physical therapy clinic. And it wasn’t the dice.
SCOTT OLSON / GETTY IMAGES

FINAL THOUGHT

“It is not a daily increase, but a daily decrease.


Hack away at the inessentials.” —BRUCE LEE

54 | FORBES MARCH 2, 2015


INVESTING
MONEY MANAGERS

Munificent Returns
William Heyman gave up a high-profile Wall Street career to become one
of the gray men of insurance. Travelers shareholders couldn’t be happier.
BY NATHAN VARDI

I
f you feel at all bewildered by the wild writing of insurance, where the real returns
and sometimes bizarre machinations are made by prudently investing the assets
of the current market, take comfort generated by the underwriting activities.
that a guy who has spent nearly four Leading up to the financial crisis, for exam-
decades on Wall Street managing ple, he held a tax-efficient portfolio packed
everything from hedge funds to insurance with municipal bonds that coasted through
assets feels the same way. “You have equities the meltdown unscathed.
at historically high prices and fixed income In fact, over the last ten years Travelers
is priced as if there were a global depression. stock has returned 267%, compared with the
Interest rates look like they did in the 1930s,” 109% return of the Standard & Poor’s 500
says William Heyman.“I get up every morn- and the 156% return of Berkshire Hathaway.
ing and by 8:30 my head is spinning.” Travelers is not the only insurer that has ad-
But Heyman, the 66-year-old vice chairman opted this strategy, but it’s arguably the most
and chief investment officer of New York City’s successful and prominent.
Travelers, has been able to prosper by sticking “I think Bill has proven time and time
to a simple rule. “Ninety-nine percent of the again that he not only takes the long view
time the proper reaction to any new piece of in- but that he has the discipline and strength
formation is to file it away mentally and do just of conviction to avoid the temptation—and
what you were doing before,” he says. withstand the pressure—to invest in the lat-
Heyman is an uncelebrated breed of inves- est ‘new thing’ or to follow the masses,” says
tor. From a gray steel office building in Mid- Ajit Jain, who runs Berkshire Hathaway’s big
town he quietly runs the $76 billion portfolio reinsurance group. “Even during extended
of Travelers, the only insurance company in periods of time when the masses are enjoying
the Dow Jones industrial average. considerable success.”
Over the years many insurance compa- What happens when institutional inves-
nies have been run as if they were private tors urge Heyman to buy more equities and
funds, businesses that existed to give their dial up the risk? Those are short conversa-
top executives a cheap source of capital (i.e., tions. “My job is to keep a company with 150
premium income) to pursue corporate ambi- years of history off the ash heap,” says Hey-
tions and to invest boldly. Risk-averse Warren man. “Some might consider that a trivial goal,
Buffett through Berkshire Hathaway has been but think about how many people couldn’t
the most successful in leveraging his signifi- pull it off the last time around—and I think
cant insurance assets in this way. Others, like there may still be a next time around.”
Hank Greenberg of AIG, which became mired If those sound like the words of a sheep-
in subprime-mortgage-related problems, and ish investor, think again. Heyman has been
Fred Carr of Executive Life, perhaps the big- around the block on Wall Street and under-
gest junk bond junkie of the Milken era, saw stands risk. He’s the son of George Heyman
their premium-fueled empires collapse. Jr., one of the early prominent arbitrage
Travelers’ Heyman may be the most con- investors who ran Abraham & Co., competing
servative of the bunch. He insists that his with Gus Levy’s Goldman Sachs in the 1960s.
main purpose is to support his company’s He is married to Katherine “Wendy” Dietze,

56 | FORBES MARCH 2, 2015


career as a lawyer and starting one of the early
risk arbitrage hedge funds, Mercury Securi-
ties. Heyman was inspired by Ivan Boesky’s
model of arb investing through a partnership
that was not a member of the New York Stock
Exchange. But that is where the similarities
end. In fact, once on a trip to California to
meet with his happy clients, Heyman remem-
bers bumping into Boesky at the Beverly Hills
Hotel and being admonished by him, “The
only time you need to see the clients is when
things are going badly,” according to Heyman.
But while Boesky was headed to Lompoc
prison for insider trading, Heyman’s arbitrage
firm rode out the stock market crash of 1987
and recovered all its losses within six months.
A year later Heyman left and went to work
for Sandy Weill, heading up Smith Barney’s
arbitrage department. Then he spent two years
as the director of the Securities & Exchange
Commission’s market regulation division, lured
by his former law firm office mate, then SEC
chairman Richard Breeden.
By the mid-1990s Heyman was back work-
ing for Weill, starting Tribeca Investments,
the internal hedge fund that invested some
of Travelers’ premium income. Ultimately
he rose to chairman of Citigroup Invest-
ments, which managed more than $100
billion. Tribeca Investments traded options
and distressed securities, but the big money
maker was convertible hedging, and Hey-
man’s returns were excellent. But Heyman
never felt that Citi’s top brass gave him his
due respect, so in the spring of 2002 he quit
without another job. “I was never going to be
on the inside there,” says Heyman.
Four decades on the former chief operating officer of Credit Soon after he left Citi, Heyman was walk-
Wall Street has
taught Travelers’
Suisse First Boston’s investment bank. ing to lunch in midtown when out of no-
William Heyman As a child Heyman was surrounded by where Jay Fishman, the CEO of St. Paul Cos.
to ignore 99% of legendary investors like Laurence Tisch and Citi’s former co-chief operating officer,
the noise.
and Benjamin Graham, the father of value jumped out of a car and suggested Heyman
investing who rode the suburban train from come to work for him. Heyman would be
Scarsdale, N.Y. with Heyman’s dad. While at named chief investment officer, and within
Princeton Heyman spent two summers as a two years St. Paul acquired Travelers’ assets
clerk on the New York Stock Exchange work- after Citi spun them off. “The luckiest thing in
ing for specialists Donald Stone and Bernard my entire career happened,” says Heyman.
“Bunny” Lasker, the former chairman of the If Fishman is the architect of Travelers’
Big Board. “I think there is a benefit in grow- seemingly unshakable success, Heyman is
DAVID YELLEN FOR FORBES

ing up around smart guys, principally be- his most trusted consigliere. “An arbitrage
cause of what you learn about risk, what they mentality is somebody who can think rigor-
think is risky and less risky,” says Heyman. ously about risk and reward probabilities,
At the age of 31, in 1979, the Harvard Law and that is what Bill grew up doing,” says
graduate took a calculated gamble, quitting his former Treasury Secretary Robert Rubin,

MARCH 2, 2015 FORBES | 57


INVESTING MONEY MANAGERS
GO
who started his finance career as a Goldman About $8 billion of Heyman’s munis are CONSIDER
Sachs arbitrageur. “Applying that mind-set prerefunded—refinanced with the proceeds
put in U.S. Treasurys. He is picky; of the tens
STOP
more broadly to the full range of asset-liabili-
ty matches is logical.” When he first got to St. of thousands of municipal issuers out there
Paul, Heyman ditched much of its equity in- he owns only 800 or so. He focuses on credits
vestments, including $800 million in venture with contractual obligations, making sure
capital. Going into 2008 Heyman held few he knows where the principal and interest
CDOs and almost none of the toxic acronyms money is coming from and what the legal
held by bailout recipients AIG or The Hart- protections are. He likes the bonds issued
ford. But through thick and thin Travelers by the Orange County, N.C. water and sewer
never stopped repurchasing its stock, a key authority and the Portland, Ore. water system
component of its success. because both are situated in good economies
The financial crisis unleashed tremendous and offer protections like rate covenants. But STOCKING UP
deflationary forces, and central banks and Heyman wouldn’t go near the highly rated David Herro has helmed
governments responded with inflationary bonds recently sold by rich Vadnais Heights, the $27.8 billion
policies. The percentage bet has always been Minn., even though he loves the suburb’s Oakmark International
in favor of inflation because “when govern- credit, because the bonds are backed only by Fund since 1992,
scouring the world for
ment wants inflation it usually gets it,” says revenues from a new ice arena. cheap stocks with big
Heyman. Nevertheless, deflation stubbornly Heyman has been a big buyer of school dis- potential. What’s his
remains a threat. Heyman has tried to posi- trict bonds and owns some $8 billion of those. outlook as winter ebbs?
tion Travelers’ portfolio so that it prospers “We like them because they are secured by
whichever way things break. He’s got 90% of taxes that people have a high incentive to pay,” CREDIT SUISSE
his assets in bonds. Yes, he’s matching his in- says Heyman. “We pick school districts where Had a brutal start to
2015, but fundamentals
vestment assets with his insurance liabilities, people are serious about educating their kids.”
are moving in its
but he has kept duration down to 3.5 years Heyman concedes you need to be careful. favor as it gains assets
while not reaching for yield and working to Many school districts pay into poorly funded and derisks. Plus, its
keep credit quality pristine. “If things break multiparty municipal pension plans. But even stock trades below
in favor of inflation, lower duration means there he’ll make exceptions. He owns bonds of book value.
you get your money back a little sooner to the New Trier school district in affluent Win-
reinvest at higher rates,” says Heyman. “If netka, Ill., despite the fact that it contributes to WPP
things break the other way, it wouldn’t really Illinois’ underfunded pension plan. He favors Still the world’s largest
matter that your duration is a little lower— districts like Elmbrook, a wealthy tax base ad agency after the
credit quality would trump everything.” west of Milwaukee with low debt and a well- ballyhooed Omni-
com/Publicis merger
With many municipalities crushed by funded teachers’ pension, and the Rochester
evaporated. It’s well-
rising entitlements and underfunded pen- (Minn.) independent school district, which positioned to capitalize
sions, and cities like Detroit struggling to stay enjoys stable finances and a rich tax base on an emerging-market
solvent, it might seem strange that Heyman is grounded by the Mayo Clinic. “Given the size recovery, but at almost
more exposed to the tax-exempt market than of his portfolio and the skill with which he has 18 times earnings it
looks fairly valued.
any of his competitors. He’s got $34 billion, managed it, he is a legendary muni investor,”
Hold off on additional
or nearly half of his portfolio, in municipal says George Walker, chief of fund company exposure.
bonds. In fact, Heyman was buying munis Neuberger Berman, which owns about $700
while Meredith Whitney was crying wolf on million of Travelers shares.
TESCO
60 Minutes in late 2010, and he is still buying As for the 10% of his portfolio in equities,
The battered U.K.
them today. Last year was a stellar one for Heyman has positions in private equity and grocery chain has new
munis—the S&P Municipal Bond index was real estate funds. He claims not to be troubled management but no
up 9%. “I don’t meddle” with Bill’s portfolio, by largely missing the stock market’s run-up clear plan after last
says Fishman. “One thing he has taught me is in recent years and has a disdain for most year’s accounting
blunders. Moody’s has
that in the taxable securities arena we accept hedge funds. Says Heyman, “It’s great that
cut its rating to junk; its
that no two securities are the same. The same there are institutions who will pay 2% for an balance sheet remains
thing holds true, even more so, in tax-frees.” 8% return. We are not one of them.” distressed. Yet its stock
is 40% above its lows.
Shop elsewhere.
FINAL THOUGHT

“Variety may be the spice of life, but consistency pays the bills.” —DOUG COOPER

58 | FORBES MARCH 2, 2015


W he re th er e’s
aW I L L ,
!
the re ’s a w ay

Weeknights 9PM ET
INVESTING
KEN FISHER // PORTFOLIO STRATEGY

TECH’S SNEAKY
MARKET DIVIDEND
READERS REGULARLY ask what ogy and services to the broader health care
can go wrong but almost never what universe. It sells at 16 times my 2015 earnings
could positively surprise. The elephant estimate with a 1.3% dividend yield.
in our world’s living room is, simply, Drug giant PFIZER (PFE, 33) got whacked
technology. Not only is Moore’s Law, last year by stagnant sales, falling earn-
the North Star of semiconductors, vi- ings and its embarrassing failure to acquire
brant and likely intact for fully another AstraZeneca. Yet its basics are sound, drug
decade, but silently other technologies line exceptionally diversified and growth
are bulging, too. potential reasonable. Despite a $209 billion
Moore’s Law—which, as you know, market cap, it’s cheap and could itself be ac-
posits that integrated circuit density quired if the stock doesn’t gallop. Buy it first
doubles roughly every two years while at 14 times my 2015 earnings estimate with a
costs halve—is the single most powerful positive economic force of 3.2% dividend yield.
our adult lifetimes, akin to the steam engine’s 19th-century impact. SANDS CHINA (SCHYY, 48), the Macau arm of
Little-known Koomey’s Law moves even faster now, predicting that Sheldon Adelson’s Las Vegas Sands (LVS)
the battery needed for a fixed level of computing will shrink greatly gambling and resort empire, has plunged
every decade—a process incomprehensible to most, yet central to 42% since last February. Spanning huge
improving our gadgets. hotel, convention and entertainment venues
Next: the Shannon-Hartley theorem, moving almost as fast, di- in China’s only legal gambling region—and
vining maximum data transmission speed over a communications arguably the world’s largest inhabited build-
channel, defining telecom’s maximum capability via fiber optics. ing, the Venetian Macao—it has big-time
Slightly slower is Kryder’s Law of magnetic memory—behind profit and stock volatility. It’s now doubly hit
most of cloud computing and more. Finally, faster-paced than any by China’s crackdown on alleged gambling
of them: DNA sequencing, allowing an unfathomable future in corruption and the announced March depar-
customized medications. ture of CEO Edward Tracy. Bet on Adelson’s
ability and Asians reflocking to gambling as
an opportunity. It sells at 12 times my 2015
PRODUCTIVITY WILL RISE AS THIS earnings guesstimate.
BULL MARKET ENDURES France’s AIRBUS (EADSY, 14) also plunged in
2014, off 31% since January. While of lesser
All five concepts are colliding into one another in ways hard to quality than Boeing, it’s basically 40% of a
imagine. While I like tech stocks, the big beneficiaries will be the rest big-plane duopoly. With there being only
of us—and firms that derive increased productivity or conception of two, buyers need it. In oligopolies of any
innovative products and services. form when one stock lags badly it almost
Investors covet past improvements but also always believe pricing always bounces back heavily. So buy it at 11
unimaginable future creativity and efficiency gains is Pollyannaish. times my 2015 earnings estimate and 60% of
And they’re always wrong. Bet on it. Productivity will rise as this bull annual sales.
market endures. Here are five good stocks that should all see a mark- I haven’t recommended India’s large IT
edly better future during that time. service provider INFOSYS (INFY, 36) since July
THOMAS KUHLENBECK FOR FORBES

Minnetonka, Minn.-based UNITEDHEALTH GROUP (UNH, 108) is a slow- 2009 at 17.5. It spikes to a new peak (and
growth, high-quality way to angle the coming Baby Boomer health then falls back) about every three years. It’s
care cost spiral. It’s both America’s largest single health carrier (the overdue now, rising, and earnings are on a
one my firm chose for its needs) and a leading provider of technol- roll. Expect 2015 to be its year. It sells at nine
times my March 2016 earnings estimate, with
MONEY MANAGER KEN FISHER’S LATEST BOOK IS MARKETS NEVER FORGET (BUT PEOPLE DO)
(JOHN WILEY, 2011). VISIT HIS HOME PAGE AT WWW.FORBES.COM/FISHER. a 1.7% dividend yield. F

60 | FORBES MARCH 2, 2015


SPECIAL PROMOTION

America’s PremierExperts® presents:


We Asked The World's Leading Professionals For Their Top Tips On

FORECASTS HEALTH, WEALTH & SUCCESS


STRATEGIES
To Help You Thrive in the New Year & Beyond and
Here's What They Had to Say...
For the New Year & Beyond.

Troy Bender | President of A.R.I.S., Inc. Tammy Lane, CPA, CA | CEO, She’s Got Profits™
In 2013, Robert Lenzner stated, on Forbes.com, the only reason the stock market Passion for what you do and making a difference with your work absolutely
was up since 2009 was because Ben Bernanke of the Fed, was purchasing $85 matter, but if your business isn’t profitable, you won’t get to help people doing
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QE3, which ended as of October 29th, 2014! What does this mean for your Pathway to Profits so you can create a customized system for bringing in
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Dr. Emmett Blahnik | CEO of Next Level Health, LLC , Author of "Simply Eat Real Foods™" Mike Lawrence  | Founder and CEO, Amp Marketing
Author | Speaker | Entrepreneur | Coach and an Official Doctor to TEAM USA. The only true financial security lies in your ability to produce.  No matter what your
Your greatest wealth is your health and your best investment is your health industry or position, always strive to be a top performer.  Become an invaluable asset
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health. If you are more stressed and depressed than happy, or more busy remember it is a marathon—not a sprint.  It is a process—not an event.
and overweight than healthy, you certainly need to refocus. One simple and
easy way to change today is to SERF™ “Simply Eat REAL Foods™ ”
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Shenia Marie Dancy, Esq. | Founder and CEO, Law Office of Shenia M. Dancy Lumbie Mlambo | CEO, Equanimity LLC
Founder and CEO of Beyond The Bedroom and The Courtroom, LLC Challenge yourself to anticipate and adapt to change better and faster. Whether
it is technological, economic, demographic, or lifestyle change, transition is a
Create unlimited opportunities, and strive to master the ability to Live Wisely,  part of our world. Remain positive, and treat disruptions as opportunities rather
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Elmer Davis, Jr. MBA, ALM | President & CEO, TBK Ventures, Inc. Josh Painter| Broker, Pacific Lifestyles Realty
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James E. Fox | President, Fox Financial Group, Ltd. Rod Polston | President & Founder, The Law Offices of Rod Polston
What is trending for many pre and post retirees is the firestorm of Guaranteed Live your life and set your goals as if there are no barriers on how successful
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Mark Anthony Garrett | Inspirational Speaker, Author & Innovator, Global Insight Productions Cheryl L. Robertson | President, The Corporation for Social Security Claiming Strategies
The greatest leaders and teachers in our world understand that being average In this age of specialization, nothing is more valuable than expertise. As baby
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David C. Gibson, CFP| Gibson Financial Services Will Shannon | Director, Pinnacle Health Clinic President, Australian Complementary Medicine Association
More and more corporations are reducing or eliminating defined benefit plans. Health and self-care is critical in the New Year. Devoting some time to ensuring
People now have to adapt their retirement strategies to structure their 401k that you are healthy is one of the most important decisions you’ll ever make.  
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John Holt  | President, Holt Electrical Contractors, Inc. Richard Tyler | President and CEO, Richard Tyler International, Inc.®
As we embark on a new year, take the opportunity to reflect on the past and Look inward and ask yourself, ‘Am I committed to success or just doing business
continue to believe in those that make your success possible. The culture created as usual?’ To be committed to success means to have mental determination to
through communication, support and education is invaluable. Your employees accept only excellence—no matter how difficult; no matter how uncomfortable;
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George A. Hoop, D.D.S. | Founder and CEO, Total Dental Solutions for Adults Jaime Westenbarger | President, Forest Hills Financial, Inc.
With recent budget realities, more people are searching for ways to offset We live in a world of entitlement and excuses. If you want to be truly successful
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For More Info On These Professionals Please Visit www.AmericasPremierExperts.com


INVESTING
JIM OBERWEIS // SMALL STOCKS

DOWN BUT NOT OUT SMALL CAPS


LAST YEAR WAS ANOTHER great to produce a safe and effective implant. For
one for large stocks. Unfortunately the example, its wound-care product EpiFix is a
high-growth small stocks I recom- tissue graft used for the treatment of condi-
mend in this column did poorly. In tions like diabetic foot ulcers. MiMedx says
2014 my column picks returned –1.8% EpiFix beats the competition in terms of
after commissions versus a gain of efficacy, speed of healing and cost. MiMedx
3.6% for a portfolio similarly invested is growing revenues at 75% organically, and
in the Russell and 9.6% for the S&P profits are growing even faster. The firm’s
500. Indeed, the Russell 2000 returned large growth opportunity explains its steep
just 4.9% in 2014, trailing large caps by valuation at 53 times my forward estimate of
the widest margin since 1998. $0.15 in earnings per share.
But given that small stocks have a WAGEWORKS (WAGE, 59) provides on-demand
long history of outperformance relative to large caps, it would be fool- administration solutions for programs like
ish to give up on them. Valuations for high-growth small caps have flexible spending accounts (FSAs) and health
fallen 20% since January 2014 and are again below their long-term savings accounts (HSAs). These pretax
average levels. Small caps tend to fare better when GDP accelerates. programs are increasingly popular, and
Cheap oil will be the catalyst for earnings growth that I believe will WageWorks benefits from growth in high-
produce better-than-expected GDP in 2015. And if you are worried deductible health insurance plans, which
about the strong dollar, keep in mind that small companies tend to are often paired with HSAs. I also expect
have less currency exposure than multinationals. Here are four great growth in FSAs as well, as a recent change
candidates: loosened the “use it or lose it” provision and
Santa Clara, Calif.’s INPHI (IPHI, 19) develops and sells high-speed now permits up to a $500 carryover into the
analog and mixed-signal semiconductor systems to the communica- following year. Due to its highly predictable
tions, data center and computing markets. An explosion in data from and recurring revenues, the San Mateo, Calif.-
based company’s shares trade for 50 times my
forward earnings-per-share estimate of $1.12,
CHEAP OIL WILL FUEL GDP AND which is for 30% growth.
SMALL-COMPANY STOCKS Beijing’s TARENA INTERNATIONAL (TEDU, 12) is a
professional education provider primarily
focused on information technology. Instruc-
high-speed LTE communications is driving the need for faster fiber tors deliver lectures from a classroom in
networks and faster communication within cloud data centers. Inphi Beijing that simulcast at its learning centers
product offerings, which expanded after its $131 million acquisition of throughout China. Growth is being driven
Cortina Systems last October, help move big data faster. About 75% of by additional learning centers and expansion
Inphi’s business is booming and riding the wave of 100-gigabit optical into new verticals, such as digital arts. Shares
network adoption. Expect revenues to grow 85% in 2015, both due to trade for 19 times my forward earnings-per-
organic growth from 100G adoption and from the Cortina acquisition. share estimate of $0.62, for 35% earnings
Shares trade for 21 times forward earnings of $0.90 per share. growth.
Marietta, Ga.’s MIMEDX GROUP (MDXG, 8) develops patent-protected Among last year’s picks hold on to LIGAND
THOMAS KUHLENBECK FOR FORBES

regenerative bio-implants and biomaterials from placentas. Mothers PHARMACEUTICALS (LGND), ZELTIQ AESTHETICS (ZLTQ),
delivering full-term Caesarean section babies can elect in advance of CHINA MOBILE GAMES (CMGE), SYNCHRONOSS TECHNOLO-
delivery to donate the placenta in lieu of having it discarded as medi- GIES (SNCR) and DIPLOMAT PHARMACY (DPLO). Sell the
cal waste. MiMedx processes the placenta via a proprietary process others to make room for new ideas. F

JIM OBERWEIS IS PRESIDENT OF OBERWEIS ASSET MANAGEMENT AND EDITOR OF THE OBERWEIS
REPORT. FOR MORE INFORMATION VISIT WWW.FORBES.COM/OBERWEIS.

62 | FORBES MARCH 2, 2015


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March 7, 2012 “U.S. Municipal Bond Defaults and Recoveries. 1970-2011.” Past performance
Parsippany, NJ 07054
is not guarantee of future results.
INVESTING
RICHARD LEHMANN // FIXED-INCOME WATCH

WHY YOU SHOULD


PREFER PREFERREDS
AT LEAST ONCE A YEAR I review the 2024. I have been recommending securities
market for preferred stocks to remind of this unrated but well-run global agricul-
income investors that there is an alter- tural cooperative for a decade. It’s getting
native to bonds. Bonds currently have hard to find such high coupons with long call
an interest rate cloud hanging over protection, and this one is eligible for the 15%
their future, yields are already meager tax rate on qualified dividend income (QDI).
and in the case of junk bonds high risk For those wanting an investment-grade
is a big worry. issue, look at RENAISSANCERE HOLDINGS, a Baa2/
Think of preferreds as the Rodney BBB+/BBB-rated global property and ca-
Dangerfield of investments; that’s sualty insurer. It has a 5.375% NONCUMULATIVE
what makes them such a good buy. PERPETUAL PREFERRED (RNR E, 24) yielding 5.6%
They cover seven varieties of securi- (QDI), callable in June 2018. A comparably
ties that can be either debt or equity. They are particularly suited for rated bond currently yields less than 4%. Fi-
individual investors because they’re often too small for institutional nancial institution preferreds make up a large
investors who deal in million-dollar positions. However, when you amount of the market, and here I recommend
ask your broker about them, you usually get a negative response. CAPITAL ONE FINANCIAL. This medium-size finan-
Most brokers don’t understand these securities well enough to rec- cial services company has a QDI-eligible 6.25%
ommend them. This is compounded by the fact that many firms ban PERPETUAL PREFERRED (COF C, 25), which is rated
their sale by rank-and-file brokers because most preferreds are rated Ba1/BB and callable in September 2019.
below investment grade. No brokerage firm wants to get tied up in REITs are also a preferred play. I like
client litigation in the event that one of those preferreds ends up in DIGITAL REALTY TRUST, which owns data centers
a bankruptcy. If you insist on investing in preferreds, many advisors in 130 locations worldwide. Its 6.625% SERIES
will simply steer you into mutual funds, for a fee of course. F PREFERRED (DLR F, 26) yields 6.5% and is rated
My advice is to ignore your broker and selectively buy preferred Baa3/BB+. If you want a REIT with an equity
play along with a preferred yield, look at EPR
PROPERTIES, one of only a handful of attractive
ALL THE NEWS ABOUT FED RATE HIKES convertible preferreds. Its 9% PREFERRED (EPR E,
IS GREATLY EXAGGERATED 33) yields 6.9%, which is well above the 4.1%
yield on the stock. Conversion won’t hap-
pen until the common stock reaches $83.11,
stocks directly. All the news about Fed rate hikes and their effect on up from a current $64. That translates to a
long-term securities is greatly exaggerated. The hikes affect long rates preferred redemption at $37.50, which is not
only if our central bank begins selling off Treasurys and mortgages, a bad call-away premium.
and this is not even under discussion. When rate hikes come, they will Now for my FORBES 2014 scorecard. Last
affect short-term paper, probably in one or two 25-basis-point hikes. February I began the year recommending 14
Preferreds that pay 5.5% to 7.5% are likely to appreciate in 2015 securities that, along with my other picks,
because long rates will be driven down by the rising value of the dol- returned a handsome 11.9% for the year,
lar. That hurts international companies’ earnings but brings a flood nearly doubling a benchmark return of 6.3%.
of carry trade and foreign money into the U.S. to invest for yield and One of my biggest losers was gold (GLD),
THOMAS KUHLENBECK FOR FORBES

currency gains. In fact, the real fear today is that declining oil prices recommended as a hedge against surprises.
will induce deflation, which also drives interest rates lower. The surprises came late in the year, but gold
It is important to diversify your preferreds. Start with CHS INC. 6.75% has almost fully recovered so far in 2015 and
PERPETUAL PREFERRED (CHSCM, 25), yielding 6.8% with no call until Sept. 30, looks better with each passing day. F

RICHARD LEHMANN IS EDITOR OF THE FORBES/LEHMANN INCOME SECURITIES INVESTOR NEWSLETTER AND PRESIDENT OF LEHMANN LIVIAN FRIDSON ADVISORS.
FOR MORE INFORMATION FOLLOW HIM AT FORBES.COM/LEHMANN.

64 | FORBES MARCH 2, 2015


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efficiently. That means lower utility bills and greater comfort for you — and fewer of the
greenhouse gas emissions that contribute to climate change. Join the millions who have
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Features March 2, 2015

BELIEVE THE HYPERLOOP 68

THE NEW NEUROSCIENCE 76

ROCK ’N’ ROLL YOUR IRA 84

THE CARIBBEAN’S NEXT TAX HAVEN 90

FORBES has
assembled an all-
star roster of former
coaches, like Hall of
Famer Joe Torre, to
JAMEL TOPPIN FOR FORBES

diagram the smartest


plays for life’s later
innings in our annual
retirement guide. PAGE 84
MARCH 2, 2015 FORBES | 67
68 | FORBES MARCH 2, 2015
B E L I E V E
T H E
H Y P E R L O O P

The race to turn


Elon Musk’s vision
for high-speed
travel in steel tubes
is officially on.
Buckle up.
BY BRUCE UPBIN

PHOTOGRAPH BY JAMEL TOPPIN FOR FORBES

From startup to the speed of sound:


Hyperloop Technologies’ Brogan
BamBrogan and Shervin Pishevar.

MARCH 2, 2015 FORBES | 69


H Y P E R L O O P

he majestic Senate majority leader suite in You remember the hyperloop, don’t you? It’s that far-

T
the U.S. Capitol was still Harry Reid’s in out idea billionaire industrialist Elon Musk proposed in
September when he eagerly scooched his a 58-page white paper in August 2013 for a vacuum-tube
leather chair across the Oriental rug to transport network that could hurtle passengers from San
gaze at something that, he was told, would Francisco to Los Angeles at 760 miles an hour. Laughed
change transportation forever. off as science fiction, it is as of today an actual industry
Former SpaceX engineer Brogan BamBrogran (yes, with three legitimate groups pushing it forward, including
that’s his legal name) pulled out his iPad for a preview. Hyperloop Technologies, the team in Harry Reid’s office.
Two business partners, the near-billionaire venture capi- They emerge from “stealth” mode with this article, armed
talist Shervin Pishevar and former White House deputy with an $8.5 million war chest and plans for a $80 million
chief of staff Jim Messina, carefully studied the powerful round later this year. “We have the team, the tools and the
senator’s reaction. Even Mark Twain, a onetime riverboat technology,” says BamBrogan. “We can do this.” The 21st-
pilot whose portrait hung over century space race is on.
Reid’s desk, eyed the proceed- COME ON PEOPLE, It’s hard to overstate how early
ings warily. this all is. There are dozens of en-
“What’s that?” asked Reid,
WE CAN DO THIS! gineering and logistical challenges
The $40 million per mile cost of a hyperloop is in line
sitting up, animatedly point- with other giant transportation projects. that need solving, from earth-
ing at the iPad. BamBrogan’s quake-proofing to rights-of-way
Interstate Highway System
home screen showed a photo of U.S. to alleviating the barf factor that

FROM TOP: DAVID TULIS/AP; XINHUA/YANG SHUNPEI/NEWSCOM; GETTY IMAGES; CHINAFOTOPRESS/GETTY IMAGES ; DENIS CHARLET / AFP PHOTO; G. LENZ/PICTURE ALLIANCE/NEWSCOM
a desert plain with dazed and TOTAL COST/COST PER MILE comes with flying through a tube
dusty people wandering around $478 billion/$10 million near the speed of sound.
at sunrise. COMPLETION DATE Yet it’s equally hard to overstate
1992
“Er, that’s Burning Man,” the how dramatically the hyperloop
engineer responded, then clued National Trunk Highway System could change the world. The first
in the 75-year-old politician to China four modes of modern transporta-
TOTAL COST/COST PER MILE
the techno-hippie carnival that tion—boats, trains, motor vehicles
$140 billion/$6.5 million
takes place pre-Labor Day in COMPLETION DATE
and airplanes—brought progress
the Black Rock Desert of Reid’s 2007 and prosperity. They also brought
home state of Nevada. pollution, congestion, delay and
Chuo Shinkansen
BamBrogan’s formal presen- Japan death. The hyperloop, which
tation was even wilder, a vision TOTAL COST/COST PER MILE Musk dubs “the fifth mode,” would
for efficiently moving people or $88.5 billion/$497 million be as fast as a plane, cheaper than
COMPLETION DATE
cargo all over the Southwest, to a train and continuously available
2045
start, and the world, eventually, in any weather while emitting no
at rates approaching the speed Beijing-Shanghai High Speed Rail carbon from the tailpipe. If people
China
of sound. TOTAL COST/COST PER MILE
could get from Los Angeles to Las
At the end of the 60-minute $33.1 billion/$40.4 million Vegas in 20 minutes, or New York
pitch Reid sat back and smiled. COMPLETION DATE to Philly in 10, cities become metro
That’s when Pishevar leaned in, 2011 stops and borders evaporate, along
asking the senator to introduce Channel Tunnel with housing price imbalances
him to a Nevada businessman U.K.-France and overcrowding.
who owned a 150-mile right of TOTAL COST/COST PER MILE The only thing this geek fan-
$15.4 billion/$490 million
way from Vegas to California tasy is missing: Musk. With his
COMPLETION DATE
for a high-speed train. Reid said 1994 hands full simultaneously run-
he would, and they shook on it. ning Tesla Motors and SpaceX,
And thus fell another obstacle in Oresund Bridge he’s left it to others to make his
Denmark-Norway
the group’s fast-moving efforts TOTAL COST/COST PER MILE theory a reality. He declined to
to actualize what until recently $7.8 billion/$1 billion comment for this story. But his
had seemed not much more than COMPLETION DATE fingerprints are on each of the
geek fantasy: the hyperloop. 2000 groups vying to build the hyper-
1
ALL FIGURES ARE IN CONSTANT U.S. DOLLARS loop, even though they couldn’t

70 | FORBES MARCH 2, 2015


HOW THE HYPERLOOP WORKS
Elon Musk said that if the Concorde, a railgun and an air-hockey table had
a three-way, the hyperloop would be the love child. Here’s a look inside VACUUM TUBE Capsules will travel in a near-vacuum to reduce drag
Hyperloop Tech’s high-speed cargo pod. significantly. Valves and pumps will keep internal air pressure at about
100 Pascals, or one-thousandth the air pressure at sea level. A little
nitrogen may be injected into the tube as a desiccant.
COMPRESSOR Mounting a giant compressor fan on the front of the capsule
is what makes the hyperloop possible, transferring huge volumes of air away
from the nose. Without it, the pod would be pushing all the air in front of it,
like a syringe, or you’d have to spend big bucks on a bigger tube. Respect the
Kantrowitz limit—the top speed allowable given a tube-to-pod-area ratio.

PROPULSION The Hyperloop


capsule speeds along a
“magnetic river” propelled
PAYLOAD Hyperloop Tech’s cargo by linear induction motors
capsule will be about 70 feet long, spaced along the tube or
big enough to hold a standard installed as a continuous
40-foot intermodal container. The strip. Linear induction, used
AIR BEARINGS The capsule will ride on a capsule should weigh about 68,000 on maglev trains and the Toei
cushion of air pumped from the bottom pounds and could theoretically Ōedo Line in Tokyo’s subway,
of lunch-tray-size sleds. Landing gear may accelerate from zero to 750mph in has no moving parts and low
need to be deployed as it comes to a stop. less than a minute.   maintenance costs.

be more different. or up and down the coasts hurtling shipping containers at


Hyperloop Technologies is the Dream Team, enlisting near supersonic speeds. Need iPhones? Press a button and
a formidable lineup of Silicon Valley and Washington su- a container-load is on its way from Shenzhen overnight.
perstars, most with a strong connection to Musk. Pishevar, Against this establishment lineup of all-stars, Dirk Ahl-
the 40-year-old poised to break into the billionaire ranks born’s scrappy crew feels like the Bad News Bears. Also
thanks to his investment in Uber, is a Musk intimate and based in L.A. and boasting a similar name, his Hyperloop
the one who forced his friend to publicly reveal his hyper- Transportation Technologies (HTT) has the numbers: 200
loop vision in the first place. His new Sherpa Ventures engineers, designers and others who for the past year have
fund led Hyperloop Technologies’ seed round, along with essentially crowdsourced the hyperloop. Launched with a
Formation 8, overseen by Joe Lonsdale, another young call to arms on Ahlborn’s site JumpStartFund, HTT now
(FORBES 30 Under 30) centimillionaire hyperloop enthu- has permanent moonlighters from Cisco, Boeing and Har-
siast and cofounder of big-data colossus Palantir. Now add vard who work strictly for equity. They’re organized into a
Messina, who oversaw President Obama’s 2012 reelec- federation of teams tackling different aspects of the hyper-
tion campaign; cochairman David Sacks, who worked loop: financial models, cabin and station design, capsule en-
under Musk at PayPal before scoring big at Yammer; Peter gineering. “At a certain point we’ll need a full-time team and
Diamandis, founder of the X Prize Foundation, on whose to raise money,” says Ahlborn, “but right now it’s working
board Musk sits; and BamBrogan, who until recently was well.” HTT plans to present its latest work at big railroad
one of Musk’s key SpaceX engineers. Musk has received trade shows in Dubai and Johannesburg later this year.
regular updates from this group. President Obama has Meanwhile, a group of Musk’s own SpaceX engineers
been briefed as well. have been agitating to get in on the action. So in January
Even more surprising than the platinum-plated roster: Musk announced cryptic plans to fund the construction
Hyperloop Tech’s initial mission. They intend to go way of a hyperloop test track in Texas, with no date specified.
beyond Musk’s original vision and focus first on freight Just as Musk “open-sourced” his initial hyperloop concept
rather than human transportation. This high-speed in 2013, he says he plans to make the track, which will be
“cargoloop” could go over land or under water. Imagine designed for scaled-down capsules, available to any group
submerged skeins of steel tubes crisscrossing the ocean that wants to test a design.

MARCH 2, 2015 FORBES | 71


H Y P E R L O O P

The vision for the Texas test track is something out of toting him and his two siblings. His father, who had run a
Star Wars—pod racers flying through the air, would-be rebel big part of Iran’s TV network under the Shah, had barely
forces facing off against the Empire. Which isn’t a bad anal- escaped a year earlier and was driving a cab in Washington,
ogy for this whole nascent business. “We’re peering into a D.C. His mother, a teacher, got a job as a maid at a Ramada
process that hasn’t happened before,” says Pishevar. “It has Inn. Pishevar’s English was so bad that his second-grade
risk, but this is an idea that can change the world.” teacher threatened to hold him back. By the time he was
10, though, he was calling local radio stations and debating
ci-fi writers and other dreamers have long Middle Eastern politics. “I think he was born 40 years old,”

S envisioned fast, tubular travel. Rocketry


pioneer Robert Goddard in 1909 wrote a
paper that wasn’t too far off from Musk’s
proposal. In 1972 Robert Salter of the RAND
says his brother Afshin, who sold his law firm to move to
L.A. as Hyperloop’s general counsel.
After graduating from Berkeley in 1998, Pishevar re-
turned to Maryland and started a series of companies,
Corp. conceived a supersonic transcontinental including an early operating system, WebOS, as well as the
underground railway called the Vactrain. Shervin Pishe- Social Gaming Network and Webs.com, which eventually
var was one of those dreamers. Back in the dot-com era sold to Vistaprint for $117.5 million. In 2007 he moved to
he floated an idea called Pipex, a network of pneumatic San Francisco and began writing small checks to start-
tubes that would shuttle important documents around San ups on the side. Menlo Ventures hired him as an investing
Francisco. It didn’t go anywhere. partner in June 2011, and he got the San Francisco firm
But Pishevar has. Mention his name around Silicon into Tumblr, Warby Parker and Uber.
Valley and you might well get an eye roll. A fast talker and Two years ago Pishevar raised $153 million to start his
oversharer quick with hugs, tears and humble-brags, he own fund, Sherpa Ventures, with former Goldman Sachs
drops the names of celebrity friends (Jay Z, Edward Nor- venture investor Scott Stanford. Rather than backing exist-
ton, Sean Penn) likes dimes in a jukebox. ing startups, their idea was to build new companies from
“He’s unquestionably a promoter,” says one Valley scratch around talented people. One of the first ideas he
investor who’s done deals with him. “But there are many put in motion: Hyperloop Tech.
good things that come from being a promoter.” Ask anyone The hyperloop startup has a typically Pishevar prov-
at Menlo Ventures, where Pishevar engineered one of the enance. Over the past few years he’s inserted himself in
$4 billion venture firm’s greatest investments ever, in a Hollywood’s self-important diplomat set, traveling with
then-small-but-growing taxi app called Uber. Sean Penn to Benghazi to meet Libyan rebels who fought
Pishevar was initially turned down by Uber and its Qaddafi and to Tahrir Square to rally with Egyptian pro-
backers when it closed its second round of funding at the testers. In January 2012 he and Penn were riding on Elon
end of 2011. Pishevar was giving a talk in Algeria when Musk’s private jet to Cuba to pressure the Castro gov-
he got a call from Uber CEO Travis Kalanick, saying he ernment to release some American prisoners. En route,
was back in if he could come meet Kalanick in Dublin. Pishevar pushed Musk about when he was going to tackle
Pishevar grabbed the next flight to Ireland. “I didn’t really the hyperloop, a project the billionaire had been privately
know Shervin, [but] I was getting e-mails from him and dropping hints about for almost a year.
intros from everybody he knows,” Kalanick told FORBES “He said he didn’t have time to do it himself. So I said,
in 2012. “I met with him because I had to.” The two hit it ‘I’ll do it. I’d love to do it.’” Over the next six months
off, walking the streets of Dublin for hours. They signed Pishevar kept on Musk to publish his hyperloop research,
a term sheet in the wee hours of the
morning. Menlo left with an estimated
8% of Uber, at a valuation of $290 mil-
lion. The company is now worth $42 “Our 200 part-time
billion. “I always tell people ‘Lesson
number one: Get on that plane,’” says
people, who know what
Pishevar, whose Uber and other hold- they’re doing, are
ings are worth about $500 million.
That score is the capstone of this performing better than
immigrant’s rags-to-riches American
dream. Pishevar was six when his moth-
Dirk Ahlborn 30 people full-time.”
Dirk Ahlborn
er fled post-revolution Iran in 1980,

72 | FORBES MARCH 2, 2015


but Musk kept begging off, saying he was too busy. Pishe-
var being Pishevar, he forced the issue: In May 2013 at
PIPE DREAMS
The hyperloop joins a long list of radical transportation projects.
the AllThingsD conference, Musk had again avoided the Here are some glimpses of the future (and one from the past).
subject of the hyperloop onstage. So Pishevar got to the
microphone first for the audience Q&A: “Elon, can you skyTran
please let the audience know more about the hyperloop Inspired by the 40-year-old personal rapid transit system
idea?” Suddenly on the spot, Musk stumbled through a in Morgantown, W. Va., skyTran is a high-speed (150 mph)
network of two-person pods that whisk people on sus-
description and reluctantly promised to release the report pended maglev tracks. A test system is slated this year in
by August. The idea was now public. Tel Aviv, with a bigger city network projected for comple-
And when he did release his report, the Internet ex- tion by the end of 2016. SkyTran says tickets will sell for
less than a bus fare. We doubt that. Cost: $80 million.
ploded with commentary, praise and snark. No matter, as
Pishevar began putting the hype in hyperloop. A major Terrafugia Flying Car
Democratic Party donor, he turned a meeting with Presi- It’s 2015 and we still don’t have flying cars? Terrafugia
aims to change that with its Transition street-legal
dent Obama at the White House into a 30-minute hyper-
airplane, enabling you to commute like the future Marty
loop pitch. The President vowed to read Musk’s report McFly. There have been successful test flights, and deliv-
that night, according to Pishevar, and the next week asked eries are anticipated for 2016. Still, flying cars have been
promised for so long we’ll believe it when we take one to
the Office of Science & Technology Policy to review the
work. Cost: $279,000.
idea. He pulled a similar stunt on Larry Page while on the
Google founder’s yacht as they watched the America’s Cup Project Harp
race in San Francisco Bay. Jules Verne imagined a day when astronauts would be
fired from a gigantic gun to the moon. In the 1960s the
Pishevar’s persistence began paying off. Lonsdale U.S. and Canada tried to build guns that could shoot
committed to invest money and time. Then came Mes- satellites into orbit. Despite perpetual funding woes and
sina, who was already an outside partner at Sherpa Ven- political obstacles, the project was able to fire test pay-
loads up to 112 miles high before it was shut down in 1967.
tures. “Shervin understood very early on it was a political
challenge,” says Messina. “But this is not a typical sell. Shweeb
It’s one of those things that if we do it, it could change Google invested $1 million in Shweeb, which is developing
everything. If we think on our feet and start moving fast, a system of monorails with individual pods that you pedal
with your feet. The company built a 220-yard prototype
this is doable. It’s not like flying to Mars.” And when at an amusement park in New Zealand. Cool for cities,
Musk came to Pishevar’s 40th birthday party on a private but what rhymes with Shweeb?
850-acre island in the British Virgin Islands, the VC got
his blessing to pursue David Sacks, who had been Musk’s ET3
Two weeks before announcing Hyperloop, Elon Musk met
COO at PayPal and had just sold Yammer to Microsoft for with the founder of ET3, who is talking up a network of
$1.2 billion. vacuum tunnels through which car-size capsules fly using
magnetic levitation. The company claims that its system
“I thought I was being asked to join a charitable board,”
could be built for a quarter of the cost of a freeway and
says Sacks, who eventually joined Pishevar as Hyperloop support more traffic. It is seeking sites for a 3-mile proto-
Tech cochair, “but I realized they were serious about type that can travel more than 370mph.
turning this into a business.” While Musk was still offi-
cially keeping his distance from all hyperloop projects, he Kevin Brogan decided last year to merge more than just
secretly met with Pishevar and Sacks for an update over lives with his new wife, Bambi Liu, now Bambi BamBro-
dinner at the Sunset Tower Hotel in L.A. in April. “Elon gan. He’s got a Sgt. Pepper’s-era handlebar mustache and
felt that if we could prove it could work, even a two- or deep v-neck T-shirt, which exposes a skeleton key. But get
five-mile prototype, that would overcome any political behind the pretension and you find a world-class engineer,
challenges or regulatory issues,” says Sacks. “But we all who did all of the design work on the second-stage engine
agreed we had to prove it first with private money.” of the Falcon 1 and was the lead architect for the heat
That’s what Pishevar’s money is going toward. The shield of the Dragon capsule. “He came up with a design
$8.5 million will cover initial engineering and design, with no one had seen before,” says a former SpaceX colleague.
the $80 million to build and operate the test track. But BamBrogan was initially uninterested in Musk’s idea. “I
who will build it? Musk’s SpaceX engineers kept telling have no interest in helping rich people get from San Fran-
TERRAFUGIA: AP

Pishevar the same name: Brogan. cisco to L.A. 20 minutes faster,” sniffs the well-paid engi-
As with his boss, it’s easy to poke fun of Brogan Bam- neer. But redrawing cities and the dirty container shipping
Brogan. The ridiculous name came when the former industry, as Pishevar pitched it? BamBrogan was sold.

MARCH 2, 2015 FORBES | 73


H Y P E R L O O P

irk Ahlborn, a tall, easygoing German who

D
bears more than a passing resemblance
to Liam Neeson, comes to the world of
transformative transportation theory
through…pellet stoves. He had run an Ital-
ian company in that field, and helped launch
an assortment of startups, including a gas-fueled turbine
play, after coming to Los Angeles in 2009. When the JOBS
Act passed in 2012, he hatched a plan to make the startup
process completely open source. His two-year-old Jump-
StartFund encourages inventors to post their ideas and
seek funding or partnerships from the public.
Musk’s white paper was pretty much a public pitch,
and Ahlborn jumped on it. A partner introduced him to
SpaceX CEO Gwynne Shotwell, and she gave the green
light for HTT to call for proposals in October 2013. They
quickly had a couple hundred volunteers to sort through.
Anyone who works at least ten hours a week gets
equity in the company. Ahlborn, based out of Hermosa
Beach, Calif., keeps the teams connected through weekly
conference calls and shared Google Docs. “Some of them
are reluctant to admit to their boss what they’re doing
because they have full-time jobs,” he says. HTT has been
refining aspects of the project for a year now, releasing
its updates on its website. A group of math students at
Harvard and other schools built a fairly advanced route-
optimization model that plans the cheapest and least
nauseating path to link any city-pair. An electric motor (naturally) in L.A.’s hipster neighborhood, Los Feliz, to a
company in Portland is working on the capsule’s propul- 6,500-square foot former ice factory in L.A.’s gentrifying
sion system. A team of UCLA architecture students have arts district, just down the block from a topless bar.
created scale models of passenger interiors out of wood— A big breakthrough came following the Harry Reid meet-
but it’s not clear what they’re going to be doing once ing. The senator introduced the group to Anthony Marnell,
they’re done with school. who has built all of Steve Wynn’s Las Vegas megaproperties
A cost analysis team estimates conservatively that a and also served as CEO of the Rio Hotel & Casino. His real
two-way passenger tube will run $45.3 million per mile. “I passion? Returning passenger rail from the West Coast to
believe we’ll find innovations with steel or other materi- Vegas. “I’ve been chasing fast trains around the world for
als to bring the price down closer to $20 million per mile,” almost 30 years,” he says. Over the past 10 years Marnell and
says Jamen Koos, a Cisco employee who is running HTT’s his investors have sunk $50 million of their own money into
product management team. XpressWest, a proposed 190-mile high-speed link from Sin
Ahlborn says he has interest from the Mexican govern- City to L.A.’s eastern exurbs, mostly to acquire the right-of-
ment for a 120-mile loop connecting Mexico City to Que- way. A hyperloop experiment would be far more interesting.
retaro, but he’s a long way from firm commitments. Even Negotiations are ongoing. “There’s got to be a way for us to
so, he’s convinced that his crowdsourcing model will not work together,” says Marnell.
turn off potential customers. “Our 200 people, who know A deal there would be important given that Musk’s
what they’re doing, are performing better than 30 people original proposal—the S.F. to L.A. route—isn’t happening.
full-time,” says Ahlborn. Even discounting the political nuttiness that required 20
The pros, meanwhile, are already trash-talking. Bam- years just to get ground broken on California’s high-speed
Brogan predicts that HTT’s efforts “will be a great source rail project, Musk couldn’t figure out a way to get tubes
of summer interns for us.” Since August, work at Hyper- any closer than an hour from each city. Ramming rights-
loop Tech has moved from BamBrogan’s garage, located of-way through already congested cities remains a huge
long-term issue with the project. HTT’s artist render-

74 | FORBES MARCH 2, 2015


This never-before-seen rendering shows an undersea hyperloop for cargo that would connect Los Angeles to San Francisco without the hassles
of acquiring land rights in big cities. A bigger ambition: laying pipe all the way to China to eventually replace polluting container ships.

ings show Hunger Games-style tubes on pylons crossing pushed out through the sleds below the capsule. The hard-
New York City’s East River in the shadow of the Brooklyn drive industry offers some models, but no one has used air
Bridge. Good luck with that. “I’m convinced hyperloop is bearings that move at near transonic speeds outside of a
doable if you ignore the rights-of-way issue—which you lab. (BamBrogan’s team plans to build a test rig this sum-
can’t,” says Justin Gray, an aerospace engineer at NASA mer in that area.) And they will have to build the equip-
Glenn Research Center in Cleveland. That’s part of why ment that will make the tubes themselves, since no such
Hyperloop Tech is focusing on cargo: Since much of the machine exists. “I need to hire people who are really good
eastbound cargo that goes into the port of Los Angeles at figuring out what they don’t know,” says BamBrogan.
travels via rail or road through Las Vegas, that route offers Such is life in a space race. Things that once seemed im-
a natural test. possible have a way of getting done. Musk spent $100 mil-
Those are just the beginning of the issues. On the techni- lion of his own money to build the Falcon 1 rocket, which
cal side the ride could be a barf rocket at Musk’s upper limit failed four times before it worked. “It’s time to stop doing
of 4.9 meters per second squared (or 0.5g) of lateral acceler- photo apps and start doing something for the planet,” says
ation. Japan’s Tokaido train tops out at 0.67 meters per sec- Hyperloop Tech board member Peter Diamandis.
ond squared and goes only 180 miles an hour. You can also Money won’t be an issue. Pishevar says that once he gets
forget an entirely carbon-free loop. Musk envisioned lining liquid on his Uber stake (IPO, anyone?), he will personally
the tube length with solar panels. According to BamBrogan, fund half of Hyperloop Tech’s $80 million round. If they or
the drain from the hyperloop electric propulsion system ex- any others then show results, billions will flood in. “We’re
ceeds what even that many panels could provide. There will looking at the end of one civilization and the beginning of
need to be grid power, and that means coal. another, and this transportation infrastructure we’re build-
The technical challenges are also pretty steep. Hyper- ing is the beginning of that new lattice,” says Pishevar, as
loop Tech’s capsule is designed to ride on a cushion of air understated as ever. “There’s no turning back.” F

MARCH 2, 2015 FORBES | 75


Brain
Boom
Advances in genetics and
clinical science could lead
to a flood of new treatments
for depression, Alzheimer’s,
and even schizophrenia.
That’s giving hope to
millions of patients—and
rebooting one of the
biggest markets in the
history of the drug business.

T
BY M ATTHEW HERP ER

ONY COLES COULD HAVE


had any job he wanted in
the drug industry. In five
years at the helm of cancer
drug developer Onyx Phar-
maceuticals he increased
its market cap eightfold by
purchasing an experimen-
tal blood cancer drug for
$800 million, developing it into a big seller and flip-
ping the whole company to Amgen for $10.4 billion Bio-preneur: After selling
in October 2013. He personally made $60 million his cancer drug company
to Amgen, Tony Coles is
on the deal. Biotech watchers expected him to start attacking Alzheimer’s.
another cancer company or even command a drug
CREDIT TK

76 | FORBES MARCH 2, 2015


JON KOZOWYK FOR FORBES

MARCH 2, 2015 FORBES | 77


FORBES

BRAIN BOOM — HEALTH CARE 2025

giant like Merck or Pfizer. It will still take years for neuroscience to metamor-
Instead, Coles, 54, is using his own money to build phose from a backwater into a hotbed of innovation, but
a Cambridge, Mass.-based startup called Yumanity that it’s happening. Mark Fishman, the head of research at
is using yeast, the microbes that help make bread and Novartis, puts it bluntly: “We’re revolutionizing the field.”
beer, to study how misfolded proteins in the brain cause
Alzheimer’s, Lou Gehrig’s disease and Parkinson’s, and THE HISTORY OF BRAIN DRUGS IS BASED ALMOST
to create drugs based on that knowledge. There’s already entirely on luck. The first antipsychotic, Thorazine, was
interest from Big Pharma. Coles says he chose to attack tried on schizophrenics in the 1950s as a sedative and
brain diseases, not tumors, because the need is so dire miraculously stopped their hallucinations. The first anti-
and the science is so fresh. depressant, imipramine, was an attempt at making a new
“We’ve got 50 million people around the world who antipsychotic that failed but turned out to improve mood.
have these diseases, costing $650 billion a year, and lots New blockbuster brain drugs of the past few de-
of families like mine that have been affected,” says Coles. cades—Prozac, Celexa, Zoloft, Zyprexa, Risperdal, Abil-
“I had a grandmother who died of the complications of ify—all mostly plumb the same basic mechanisms as the
Alzheimer’s disease. I think about my own health as well.” old ones: boosting neurotransmitters like serotonin for
The modern drug business was built on brain medi- the antidepressants; blocking the dopamine receptor D2
cines: Valium was the first blockbuster, selling 2 billion for antipsychotics. They differ somewhat with regard to
tablets in 1978, and Prozac defined the industry in the efficacy and a lot with regard to side effects, but they op-
1990s. But stagnant science since then led many big drug erate in essentially similar ways. For years drug compa-
companies, including GlaxoSmithKline, Bristol-Myers nies have been trying out new drugs that hit other chem-
Squibb and AstraZeneca, to flee neuroscience, even as an icals without a good understanding of whether, or in
aging population promises a dramatic surge in brain dis- whom, they’ll work.
ease. In the past five years the number of drugs being de- But thanks to the revolution in our understanding of the
veloped by large drugmakers for brain and nervous sys- human genome and other advances, scientists are finally
tem disorders fell 50% to 129, according to NeuroPerspec- starting to grasp the overwhelming complexity of illnesses
tive, an industry newsletter. that afflict the brain—and how to treat them. “Depression
But now, thanks to scientific advances such as genet- isn’t one disease, it’s many diseases,” says Novartis’ Fish-
ic sequencing and new DNA editing technologies, the man, who finds the new insights hopeful rather than dis-
industry is in the midst of a dramatic reversal. Last year couraging. “Like cancer, once you understand the disease

“We’ve got 50 million people around the world


who have these diseases, costing $650 billion a year.”
investors poured $3.3 billion into firms that are devel- you have hope for making drugs,” he says.
oping drugs for brain-destroying or psychiatric illness- Some of the improvements are incremental. Psychiatry
es, more than in any of the last ten years, says Neuro- clinical trials often fail because placebo groups do better
Perspective. Some big drug companies, including John- than they should. Part of the problem is that patients can
son & Johnson, Roche and Novartis, are finding ways to exaggerate their symptoms to get into a study, and devel-
reinvigorate their efforts. New medicines for severe de- oping a relationship with their new doctor actually makes
pression, psychosis and schizophrenia could reach the their symptoms seem better.
market within the next few years, and treatments for Acadia Pharmaceuticals watched its Nuplazid, for Par-
Alzheimer’s, Parkinson’s and some forms of autism are a kinson’s psychosis, fail in a clinical trial. In 2013 it ran an-
real possibility, too. other study that used videoconferencing, having the same
“I do think that it’s early days. There has been a fair specially trained group of doctors rate the symptoms of
amount of overpromising in neuroscience drug discov- all patients. The dramatically positive results have sent
ery,” says Ryan Watts, director of neuroscience at Roche’s the stock up 437% and have shown other companies that
Genentech division. “We have to understand there are psychiatry trials can still succeed. “We expect to become
going to be a large number of failures and little incremen- the leading neurology company in the U.S.,” crows Acadia
tal victories that will start to build, and then you’ll see Chief Executive Uli Hacksell.
things cracking open.” Other research has led to giant leaps forward. In 2004

78 | FORBES MARCH 2, 2015


CHOOSE ONE
A: B:
Reduce your company’s health Consider health care complexity
benefit costs up to 25% a challenge and the money
while simplifying the process you’re leaving on the table as
“the cost of doing business”
FORBES

BRAIN BOOM — HEALTH CARE 2025

Neuro-explorer: Novartis’ Ricardo Dolmetsch aims to discover


pathbreaking new drugs by growing human brain cells in a dish.

researchers at the National Institutes of Health suspect- ready giving ketamine to their patients, though the prac-
ed that a brain receptor called N-methyl-D-aspartate, or tice is controversial.
NMDA, which is key to forming memories, was also in- Husseini Manji, who led the NIH group doing the ke-
volved in depression. By luck, a group at Yale realized tamine study, left to run neuroscience at Johnson & John-
at the same time that ketamine, a widely used anesthet- son in 2008, where he has made a nose-spray deriva-
ic that is also abused as a club drug called “Special K,” tive of the drug one of his top priorities; it is now enter-
blocked NMDA. ing late-stage trials. But he has competition from several
The results of the first trial of ketamine in just 17 de- other companies, including tiny Naurex of Evanston, Ill.
pressed people were amazing. Twelve of the patients, or Ketamine causes hallucinations. Naurex makes drugs that
SHAWN HENRY FOR FORBES

71%, improved, and five, or 29%, had their depression go don’t and has even tested a pill version.
into remission after getting the drug intravenously. In- Cindy Kelly, a 48-year-old mother of two, had suffered
credibly, their depression lifted in a matter of hours. Ex- from depression on and off for 20 years until a final de-
isting antidepressants work in only a third of patients bilitating bout that was making it hard for her to work or
and take weeks to have any effect. Some doctors are al- relate to other people. Getting into a clinical trial for one

80 | FORBES MARCH 2, 2015


of Naurex’s drugs changed her life. ground in a seizure that would not end. Doctors put her
“Within 15 minutes my symptoms were gone, and in a medically induced coma because the only hope for
it was like magic,” she says. The effect wore off a week patients with this condition is that after resting the pa-
later, and she fought to get into a second study that would tient can be brought back to consciousness and the sei-
allow her to take the medicine again. She succeeded, and zure will have stopped.
after several treatments her depression is gone, seeming- But for Melissa, seizures were detectable on an
ly for good. electroencephalogram (EEG) even when she was fully
“When you’re thinking, ‘Why am I even alive?,’ some- unconscious. Doctors tried every drug they could think
thing that takes two weeks to kick in is not helpful,” says of, and nothing worked. “They were telling us either the
Kelly of older depression drugs. “Something that can kick seizures or the medication would end her life, one way or
in right away so you can think clearly? That can save lives.” another,” says her father, Dale.
Another way to find drugs that have big effects: devel- Melissa’s sister read about Sage’s experimental drug,
op treatments for rare, terrible diseases, where creating Sage-547, on the Internet. It blocks haywire electrical sig-
any hope can change people’s lives. That’s the approach nals from jumping across nerve synapses in the brain and
taken by Sage Therapeutics, a Cambridge, Mass.-based central nervous system. Dale mentioned it to her neurol-
startup that went public in July, as it attacks a rare form ogist. Melissa, still in a coma, was flown from Springfield,
of epilepsy. Mo. to Wichita, Kans. to be part of a clinical trial.
Melissa Fishburn, 21, started having seizures at 14. After 24 hours her EEG readings improved. Six days
Last November she stiffened like a board and fell to the later doctors started to wean her off of the drugs that kept

GO CONSIDER STOP Acadia Pharmaceuticals (NASDAQ: ACAD) $30


MARKET CAP: $3.2B

Betting on the Brain đ There is no doubt that the clinical trial suc-
cess of Nuplazid, for Parkinson’s psychosis, has
20

Want to invest in neo-neuroscience? helped rekindle interest in psychiatric drugs and 10

Here’s our red-yellow-green take on paid off for investors. But does a stock that’s up 2/7/14 2/6/15

eight stocks attracting investor attention. 2,500% over five years still have room to run?

Xenon Pharmaceuticals (NASDAQ: XENE) $30

Sage Therapeutics (NASDAQ: SAGE) MARKET CAP: $220M


MARKET CAP: $990M

đ With the stock up 27% since its oversub-


$40

30 đ The company is developing pain drugs with


Teva and Roche, and will get a royalty from the
20

scribed IPO in July, some investors think this one 20 million-dollar-plus gene therapy Glybera, which 10
9
is too expensive. But rare-disease drugs with was recently approved in Europe. But the stock’s 8
7
the kind of powerful effects that this company’s 10
tiny float and volatility are worrisome. 11/7/14 2/6/15
07/18/14 2/6/15
treatment for intractable epilepsy has don’t
come along every day. Nor do management teams this skilled. Vanda Pharmaceuticals (NASDAQ: VNDA)
MARKET CAP: $410M
Alkermes (NASDAQ: ALKS)
MARKET CAP: $9.7B
$80
70
đ Its antipsychotic, Fanapt, has failed to thrive.
Newly approved Hetlioz is supposed to help
$20

đ Innovations on tap at this drug delivery


company (sales: $576 million): schizophrenia
60
50
40
blind people whose sleep cycles have been
disrupted by lack of sunlight. But some question
10
9
8
7
6
medicines that last for a month or longer after a 30 whether it is any better than taking melatonin. 5
2/7/14 2/6/15
single injection; long-lasting treatments for ad- Vanda insists it has already found 10,000 poten-
20
diction; and an antidepressant that works within 2/7/14 2/6/15 tial patients and say melatonin isn’t as effective because it doesn’t
a week. An Irish tax domicile doesn’t hurt, either. get absorbed by the body. Good luck.

Intra-Cellular Therapeutics (NASDAQ: ITCI) Alcobra (NASDAQ: ADHD) $20


MARKET CAP: $550M MARKET CAP: $125M

đ Things to worry about: This company has


been around for years and went public through
$30

20
đ This company says its clinical trial of its
ADHD drug would have worked if it could have 10
9
8
a reverse merger, rather than undergoing the excluded just four patients. But you can’t do 7
6
scrutiny that comes with an IPO. What’s to that. The results crashed the stock, and investors
10 5
like? A drug that treats schizophrenia by a new 9 should stay away unless Alcobra can come up 4
8
2/7/14 2/6/15 with a concrete plan for developing this drug.
mechanism and has psychiatrists excited. 3
2/7/14 2/6/15

MARCH 2, 2015 FORBES | 81


FORBES

BRAIN BOOM — HEALTH CARE 2025

her in a coma. A few days after that she regained con- tute of Mental Health, has even proposed creating a new,
sciousness. Now she loves singing Ed Sheeran songs at more genetics-based classification system for mental ill-
karaoke. It’s not perfect: She’s never been on a date and ness that could eventually replace the weighty bible of
takes 22 pills a day. But because of the Sage treatment, conditions that psychiatrists use to diagnose patients and
she’s alive. bill insurers.)
This approach promises huge improvements in the
TREATMENTS LIKE SAGE’S ARE JUST THE START treatment of mental illness because scientists are only
of the changes scientists hope to bring about in the way now discovering just how tricky the underlying biology of
we battle brain disease. Right now, for instance, patients mental illness can be, thanks to genetic testing.
who go to see a psychiatrist often get put on a medica- For example, an average person has a 1-in-100 chance
tion based simply on what a patient tells them about of developing schizophrenia. There’s a single genetic mu-
how they’re feeling. When one medication doesn’t work tation called 22q11 that increases those odds to 1 in 4, but
(which is more than half the time) the doctor tries anoth- it’s rare. That’s not the only way you can develop the dis-
er, or a combination of drugs, based on his or her experi- ease, though. You can also suffer from schizophrenia if
ence and gut feeling about what will work. you have lots of little mutations that add up to increase
The reason this hit-and-miss approach fails so often, your risk.
scientists are now coming to believe, is that it is based on It gets even more confusing, though, because many
attacking symptoms but not necessarily on what is bio- of those same tiny mutations that can cause schizophre-
logically wrong with the patient. nia can also lead to autism, ADHD, bipolar disorder and
In the future, hopes Ricardo Dolmetsch, who heads other mental illnesses. It’s not so much that they cause
neuroscience drug discovery at Novartis, when you go to any one disease, Dolmetsch says. It’s that each muta-
a psychiatrist she’ll consider not only your symptoms but tion makes the brain’s machinery a little more “flaky,” in
she’ll sequence your genome. his words. Depending on these variations and when in a
That will allow her to decide on the right combination brain’s development they occur, different mental disor-
of two or three drugs to treat what is actually wrong with ders result.
you. (Thomas Insel, the director of the National Insti- To deal with this terrifying complexity, drug com-

Treatments DEPRESSION MULTIPLE SCLEROSIS


To Watch Outlook: Very good. Fast-acting drugs are
already in late-stage trials after showing
Outlook: Very good. Drugs may even
reverse the disease.
great promise.
Breakthroughs in Current: Multiple sclerosis has been
genetics and sheer Currently: Existing drugs take weeks to the neurological disease with the most
stubbornness on have an effect. advances for patients because doctors
were able to discover its root cause—an
the part of drug What’s next: Faster-acting drugs. overactive immune system—and focus
developers could soon Alkermes is testing one that is in late- treatments there.
lead to new drugs stage trials that works in days, not weeks.
for intractable brain A J&J inhaled derivative of ketamine and What’s next: More pills along the lines of
diseases, including: new drugs being developed by Naurex all Biogen Idec’s Tecfidera and Novartis’ Gile-
seem to work in minutes on depression nya, which keep the immune system from
that doesn’t respond to other drugs. damaging nerves, are in development,
including Forward Pharma’s FP187.
Long term: Eli Lilly has a new antidepres-
sant pill that has shown some promise. Long term: The big thing to watch is
Johnson & Johnson and Lundbeck are whether any drug can reverse the damage
studying how depression might be the the immune system does and help nerve
result of misfires by the immune system cells regrow. One candidate is Biogen
that damage the brain. Idec’s drug known as anti-LINGO, which
should show some results next year.

82 | FORBES MARCH 2, 2015


panies are embracing new technologies—including Paul Allen. But after coming to Novartis to talk about col-
brain cells created in the laboratory expressly for re- laboration, it became clear that Novartis was a better fit.
search purposes—that allow them to test medicines with The drug giant was willing to give the 44-year-old neo-
unprecedented speed and precision. “That’s the single phyte a blank slate.
most important piece here,” says Stevin Zorn, the head of The reason the stem-cell-based “brains in a dish” are
research at Lundbeck, the $2 billion (sales) Danish maker a big deal is that these cells have huge advantages over
of antidepressants. “We’re starting to see a light that a lot mice brains, which researchers traditionally use to test
of companies are starting to follow.” drugs. Mice are not people—not even close. We’re sepa-
Nobody is embracing these technologies more fiercely rated from Mickey by 60 million years of evolution. Mice
than Dolmetsch. In 2007 he was not a pharmaceutical ex- with 22q11 mutations never get schizophrenia. Mice don’t
ecutive but a rising assistant professor at Stanford, study- get Alzheimer’s, either.
ing ivory tower questions about how nerve cells commu- So far Dolmetsch and his Novartis team have made
nicate. Then his son was diagnosed with autism. hundreds of batches of these brains in a dish in a sprawl-
He gave up all the grants that were paying for his lab- ing laboratory in Cambridge, Mass. using samples taken
oratory and started pursuing what are called induced from people with mental illness. For common diseases
pluripotent stem cells, cells that can be made from a flake like schizophrenia and depression there will be a tedious
of skin or a drop of blood and turned into any tissue in process of turning genes on and off to see what they do.
the body—including brain cells. But for some rare diseases, Dolmetsch merely screens
At first Dolmetsch focused on a rare disease, Timothy Novartis’ library of drugs against the cells to see if he can
Syndrome, that causes both autism and heart problems. He make them normal.
was interested in learning about his son but became fasci- The results are already promising. After only two years
nated by drug discovery. “There’s very little hope for these two medicines are about to enter clinical trials as a re-
people. I really became committed to the cause,” he says. sult of the new screening technique. That’s made him,
He started one project to make induced pluripotent like many others in the field, boundlessly hopeful and en-
stem cells at the pioneering Allen Institute for Brain Sci- ergetic about what comes next. “I want to restart neuro-
ence in Seattle, which is funded by Microsoft billionaire science,” Dolmetsch says. The reboot is under way. F

PARKINSON’S DISEASE SCHIZOPHRENIA ALZHEIMER’S DISEASE


Outlook: Advances coming soon, but big Outlook: Fair. Interesting drugs in develop- Outlook: Treatments that have a big
breakthroughs may take years. ment but not enough of them. impact are unlikely anytime soon.

Currently: The disease, which causes Currently: Drugs can be effective at treat- Currently: Industry bet big on injectable
shaking and loss of coordination, is ing hallucinations and paranoia but don’t medicines to prevent or reverse Alzhei-
treated with a synthetic drug, levodopa, yet treat cognitive problems and social mer’s by attacking the buildup of plaques
that boosts levels of the brain transmitter difficulties caused by the disease. in the brain—and failed.
dopamine.
What’s next: Add-on drugs. In 2016 What’s next: A lower-risk approach:
What’s next: Many therapies focus on Forum Pharmaceuticals hopes to have targeting Alzheimer’s symptoms but
what to do when levodopa wears off. results on its encinicline, aimed at helping not trying to reverse the disease. Forum
Acorda Therapeutics is developing an schizophrenics think more clearly. Acadia Pharmaceuticals expects results from one
inhaled version. Voyager Therapeutics is Pharmaceuticals is testing its Nuplazid to such drug next year. Another drug from
testing a gene therapy that may make help existing antipsychotics. Lundbeck is in late-stage trials.
levodopa effective again when patients
have developed resistance. Long term: Intra-Cellular Therapies, a new Long term: Drug companies won’t give up
publicly traded company, is testing a pill on the plaque approach. Biogen Idec pres-
Long term: Attempts by Merck, Roche and that, instead of working outside neurons, ents data for its plaque-buster in April; Eli
Pfizer to block a genetic mutation that gets deep inside them. “It could be the Lilly could release results of a big retrial of
can lead to Parkinson’s ran into prob- most promising advance in antipsychotic a failed drug next year; Roche is testing a
lems when drugs caused lung damage pharmacology [in decades],” says Jeffrey plaque-buster in patients with a gene that
in monkeys. Biogen Idec hopes to clear Lieberman, psychiatrist in chief at causes Alzheimer’s before age 40. Merck,
toxins that build in the brain as a result of NewYork-Presbyterian Hospital-Colum- J&J and others are testing plaque-clearing
the disease. bia University Medical Center. pills.

MARCH 2, 2015 FORBES | 83


RETIREMENT PLAYBOOK
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84 | FORBES MARCH 2, 2015


INVESTING

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BY WILLIAM BALDWIN

N
COACH BILL COWHER, 57 agging question for someone departing from a job, at retirement or in
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MARCH 2, 2015 FORBES | 85


RETIREMENT PLAYBOOK: INVESTING

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0.5% fee entitles a customer to at midcareer saver, Tuchman’s firm 6 BASIS POINTS
least an hour a year of phone coun- would recommend a mix with an REBALANCING: DO IT YOURSELF

seling in which retirement ambitions 86% dose of stocks. The package was 1 BASIS POINT = $1 A YEAR PER $10,000 INVESTED
and fears are probed and a prefab created with the help of an advisory
package of exchange-traded funds board of investment luminaries, because that’s where there will be
assigned. Add in the 0.15% expense including Burton Malkiel (author more economic growth. It’s light on
ratio for his most popular portfolio of the classic A Random Walk Down bonds because those things offer such
and the cost comes to 0.65%. Wall Street) and Charles Ellis (a vet- meager rewards. (Why buy an AT&T
That’s a lot—just shy of $4,000 eran of half a century of pension fund bond paying 2.5% when the stock
a year on a $600,000 portfolio. But consulting). yields double that?, Malkiel asks.)
Tuchman says his clients are the ones The Rebalance panel undertakes You can get all this expertise
who would never go it alone with their elaborate evaluations of risks, re- without paying for it. Our Copycat
rollovers. If he doesn’t rescue them, wards and costs to arrive at invest- portfolio above starts out the same as
he says, they will remain the prey of ment recipes. The risk-tolerant one Tuchman’s. But you’d be on your own
stockbrokers charging three times is heavy on small companies because, with any rebalancing or with figuring
as much. (Tuchman is a Forbes.com the experts determined, small com- out how this IRA fits in with the rest
contributor.) panies tend to do better than large of your assets and liabilities.
For a moderately risk-tolerant ones. It’s heavy on emerging markets With or without professional help,

86 | FORBES MARCH 2, 2015


REBALANCING WORKS—SOMETIMES contemplate these matters:
A REBALANCED 50/50 STOCK AND BOND PORTFOLIO BEATS A STATIC ONE ABOUT HALF How much risk can you stand? The
THE TIME. GRAPH SHOWS ANNUALIZED EXCESS RETURN FOR 25-YEAR HOLDING PERIODS. hazards of stocks are considerable at
any time. Now, posit economists at
1.0%
0.5
REBALANCING HELPS the San Francisco Federal Reserve
0.0 Bank in a recent paper, we have
-0.5
-1.0
the risk that retiring Baby Boomers
-1.5 REBALANCING HURTS will line up en masse to exit equi-
-2.0 ties, depressing returns for the next
-2.5
-3.0 decade. It doesn’t help matters that
-3.5 stocks are at the moment trading at
1826 1846 1866 1886 1906 1926 1946 1966 1986 2014
an abnormally high multiple of their
SOURCE: BOGLE FINANCIAL MARKETS RESEARCH CENTER.
long-term earnings.
Ask whether you have the stam-
ina to hang in for a rebound if Wall
DOES REBALANCING Street pulls a repeat of 2008. And
BOOST RETURNS? who guarantees that there will be a
rebound? Stocks might crash and not
“Rebalancing” is on the lips of every wealth manager. It’s one of the things they do to justify recover in your lifetime.
their fees. It’s supposed to make you richer. What other assets do you have?
Rebalancing is the art of taking money from winning investments, at regular intervals, and
Charles Ellis, the pension expert,
redeploying it into losers. The technique usually is applied to categories of investments (as
opposed to individual securities): You keep a certain balance between, say, growth stocks and says younger workers have a big asset
value stocks or between stocks and bonds. By this discipline you are induced to sell high and they don’t think about: their future
buy low, or so goes the theory. career earnings. This somewhat pre-
Burton Malkiel, the Princeton economist and advisor to Rebalance IRA, explains how the dictable income stream is more like
system would have worked over the past 15 years.
a bond than a stock. To balance out,
“It’s January 2000. You have no idea that this is the top of the Internet bubble. But you do
know that your 60/40 allocation is now 75% stocks and 25% bonds. So you sell stocks and buy he says, younger savers should lean
bonds,” he says. toward stocks.
“January 2003: You don’t know that October of [the previous] year was the bottom of the Do you have enough in that IRA?
market for stocks. You do know that the Federal Reserve is getting interest rates closer to zero, A midcareer sum of $600,000 is a
and that your bonds are up to 55% of your portfolio and your stocks are 45%. So you sell bonds
lot more than most people have, yet
and buy stocks....
“The big lesson of behavioral finance is that people do exactly the wrong thing. They came it may fall short for a better-paid
into the [stock] market in the first quarter of 2000 because high tech was hot. The money came worker expecting to maintain a stan-
out in the third quarter of 2008 because the world was falling apart. Rebalancing forces you to dard of living in retirement. Fidelity
do just the opposite.” Investments has a formula saying
So far into this century rebalancing looks very smart. But is it sure to keep working? Skepti-
that a 50-year-old should have four
cism is called for whenever anyone claims to have in hand a formula that guarantees enhanced
profits. years’ salary salted away.
Yes, rebalancing is a certain winner if you are dealing with two categories that you know, in At age 66, $1 million looks like a
advance, will have the same average return. lot. But with a safe 4% withdrawal
Suppose stocks and bonds are destined to each earn 5% a year over the next 25 years rate, an IRA of that size generates
while following irregular paths to the finish line. A portfolio that starts out 50/50 and remains
only $40,000 a year, or maybe
untouched will earn 5% a year. A portfolio that is rebalanced will do better than 5%. Just as
advertised, rebalancing will have you getting out of stocks when they are ahead of themselves $30,000 after taxes. It scarcely makes
and into relatively cheap bonds, and vice versa. up for the traditional corporate pen-
The catch is that you have no way of knowing that stocks and bonds are going to deliver the sion that has gone missing.
same average return. From 1942–67 stocks raced ahead. An undisturbed portfolio that started How much effort do you want to
out 50/50 ended up with a heavy stock allocation and an average return of 8.6% a year. A
put into fussing with your IRA? You
rebalancer would have been pulling money out of the stock market and would have ended with
only 5.5% a year. could rebalance every week, or add
Rebalancing is also bad news in a relentless bear market. If U.S. stocks sink into a 25-year all sorts of exotic categories like
funk, a rebalancer will be averaging down and getting killed. emerging market bonds, and still
Michael Nolan, an analyst at the Bogle Financial Markets Research Center, looked at 25-year end up doing no better than some-
returns for hypothetical stock/bond portfolios over the past two centuries. The chart displays
one with a plain old balanced fund
the benefit (or loss) produced by rebalancing over the return enjoyed by someone who started
out 50/50 and then stood pat. mixing stocks and bonds. The simple
Rebalancing adds to wealth just some of the time. On average, Nolan found, rebalancing solution chosen by Vic Presutti has a
subtracted an annual 0.15% from results. —W.B. lot going for it. F

MARCH 2, 2015 FORBES | 87


FORBES

BrandVoice BY FIDELITY

ARE YOU ON TRACK FOR THE


RETIREMENTYOU WANT?
Everybody likes to talk about how they will pursue their life goals in retirement. The bottom line, however,
is that they need to fund it, whether they want to travel the world, start a new business, explore a new
career or work for a nonprofit. Check to see whether you’re on track for your generation:

GEN Y
(AGE 27-37) Are you saving enough?
Aim to sock away at least
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income, including any
employer contributions

GEN X YES

(AGE 38-50) Are you investing for growth?


At this stage, you should have
70% or more of your savings in
stocks, which have outperformed
bonds and cash over the long term

NO

Keep on track
BABY YES
52% of Boomers are on
52% track to replace at least
BOOMER 80% of their targeted
retirement expenses
(AGE 51-69) Do you have a retirement budget?
On average, retirees
can be expected to spend
There’s still hope
between 60% and 95% of their
48% of Boomers fall below
preretirement income (lower income
retirees spend closer to 95%) NO 48% that level, but you can take
actions now to improve
your retirement readiness
1
Commentary provided for educational purposes only. Past performance is no guarantee of future results. Hypothetical examples assume that the individual saves until retirement age 67, lives through age 93,
and receives a 1.5% real (inflation-adjusted) increase in wages per year. Rates of return are a nominal 7.0%, which consists of 4.7% real return and 2.3% inflation. This illustration assumes that the savings
rate stays constant throughout the investor’s working career. Estimated increases in retirement monthly income are in constant 2015 dollars. It is assumed that upon retirement the real (inflation-adjusted)
dollar amount is withdrawn annually through age 93, and that the participant took no loans or hardship withdrawals from his or her workplace plan. All dollars shown (including increases to monthly retirement

88 | FORBES MARCH 2, 2015


FidelityVoice Case Study: The Power of 1%
Increase your savings 1% per year to boost retirement income1 (based on two individuals, one age 25 with a salary of $40,000, and
the other age 35 earning $60,000, both with an assumed 7% rate of return).
POTENTIAL PRETAX
CURRENT ADDITIONAL ANNUAL INCREASE IN ANNUAL
AGE CONTRIBUTIONS RETIREMENT INCOME

25 $400/YR $4,000

35 $600/YR $3,000

You’re in great shape


33% You are one of the 33%
YES in your age group who TAKE CHARGE
are saving 10% or more đƫ ƫSAVE MORE: Meet your company match
a year of their income đƫ ƫDEFER TAXES: Use 401(k)s and IRAs
đƫ ƫAUTOMATE: With payroll deductions
đƫ ƫBABY STEPS: Increase savings 1% each year
You’re not alone đƫ ƫFIX YOUR MIX: Diversify your asset mix
67% of your generation are
NO 67% saving less than 10%
of their annual income

Good job
You are among the 60% of your REV IT UP
60% age group with a healthy portion đƫ ƫPRIORITIZE: Balance your house or
of their savings in stocks for education savings with retirement
long-term growth potential đƫ ƫFIX YOUR MIX: Rebalance your asset mix to
fit your personal situation and risk tolerance2
đƫ ƫSAVE MORE: Take advantage of the power
Look for growth of compounding
40% of your generation have 50% đƫ Bƫ E TAX SMART: Maximize contributions
40% or less of their savings in stocks, to tax-deferred accounts, if eligible
which may not offer enough growth
potential for 20-30 years of retirement

DON’T PANIC
đƫ CATCH UP: Max out your savings—save 15% or more
đƫ ƫTAKE YOUR TIME: Retire later to grow savings
and maximize benefits
đƫ ƫCONSIDER OPTIONS: For example, lifetime fixed-income If you follow these savings and asset
annuities may reduce the risk of outliving assets allocation guidelines, you could improve
đƫ ƫTHINK ABOUT DOWNSIZING: Turn home equity into your prospects for meeting your
retirement savings and reduce living expenses retirement income goals

paycheck) are pretax dollars and are rounded up. Upon distribution, applicable federal, state and local taxes are due. No federal, state or local taxes; inflation; or account fees or expenses were considered. If they were,
returns and monthly increase would be lower. Investments that have potential for 7.0% annual rate of return also come with risk of loss. 2Your specific asset mix should fit your personal situation and risk tolerance.
Survey data was collected through a national online survey of 2,265 working households earning at least $20,000 annually with respondents aged 25–73 from June through October 2014.
Fidelity Brokerage Services Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. 713550.1.0

MARCH 2, 2015 FORBES | 89


RETIREMENT PLAYBOOK: TAXES

TAXES

TREASURE
ISLAND
If you want your capital gains
taxes to magically disappear,
Puerto Rico has a deal for you.
BY PHILIP DEMUTH AND LAUREN GENSLER

COACH TONY DUNGY, 59


LIFETIME STATS: LED COLTS TO SUPER
BOWL CHAMPIONSHIP. WON 139 GAMES IN 13
SEASONS WITH THE COLTS AND BUCCANEERS.
RETIREMENT PLAY: AS AN EVANGELICAL
CHRISTIAN DUNGY HAS DEVOTED SIGNIFICANT
TIME AND ENERGY TO CHARITIES, INCLUDING
BIG BROTHER/SISTER ORGANIZATIONS. ALSO
A PROLIFIC AUTHOR OF SELF-HELP BOOKS, HIS
MOST RECENT DEVOTED TO MARRIAGE.
PEP TALK:
“As a coach the goal was to win the
STEVEN KOVICH FOR FORBES

Super Bowl. Now I still set goals of


meeting young people or helping
people be better. At the end of the
day you still have that little scorecard.”

90 | FORBES MARCH 2, 2015


EDUCATION FOR LIFE

LEARN MORE. CALL 866.467.7651 OR VISIT WWW.OUTWARDBOUND.ORG


RETIREMENT PLAYBOOK: TAXES

A
s the U.S. Treasury firms and even software developers California and 29% in Connecticut.
Department con- to locate there by taxing their corpo- On short-term gains and taxable in-
tinues to tighten its rate profits from exported services terest it’s now a hefty 52.3% in NYC,
noose around offshore at a flat 4% rate and allowing those 52.6% in California and 48.6% in
accounts, a new tax profits to be paid out to the owners Connecticut.
haven has sprung up under its nose free of Puerto Rico income tax. So Sadly, moving to Puerto Rico
in the Caribbean. Welcome to Puerto far the government has okayed 346 won’t buy you a total dispensation
Rico—island of tropical breezes, and export companies, with 400 approv- from the Internal Revenue Service.
(for new arrivals only) a 0% tax rate als expected this year. Uncle Sam still wants his cut on divi-
on certain dividends, interest and Pabrai used Act 20 to set up a dends you receive from U.S. public
capital gains. new private equity venture in Puerto companies, profits from mainland
Puerto Rico is about the same Rico last year and figures he’ll save private businesses, pensions and
size as Connecticut but with more as much as $10 million in tax a year, deferred compensation earned in the
palm trees, twice the unemployment as well as half a million in operating states, and Social Security benefits.
rate, a third the median household costs. (There’s an abundance of edu- Plus, any unrealized capital gain
income and a tiny fraction of the cated Puerto Ricans ready to work accrued before you moved to Puerto
hedge funds—a deficiency the fi- for less than their California coun- Rico—say, on that Apple stock you
nancially teetering territory aims to terparts. Office space is cheaper, too.) bought for a split-adjusted $10 a

“THE WAY THE U.S. TAX CODE IS WRITTEN, I COULD BE IN


MARS AND BE TAXED ON INTERGALACTIC INCOME BUT NOT
IF I’M SITTING ON THIS ISLAND IN THE CARIBBEAN.”

correct by turning itself into a refuge Act 22 grants new Puerto Rico share—is subject to U.S. tax if you
for tax-oppressed millionaires and residents (including, after a recent sell within ten years after your move.
billionaires. amendment, returning Puerto Ricans During that period Puerto Rico
Yes, this is legal. While the U.S. who left before 2006) a 0% rate on will also impose a 10% tax on your
asserts a sweeping right to tax citi- locally sourced interest and divi- pre-move gains, which gets cred-
zens’ income wherever they live and dends as well as all capital gains ac- ited against what you owe Uncle
wherever it’s earned, Section 933 of crued after they become residents, a Sam. After ten years the U.S tax on
the tax code exempts residents of particular benefit for active traders. preexisting gains disappears and the
Puerto Rico from paying U.S. income So far 509 tax refugees have been Puerto Rican bite drops to just 5%.
tax on their Puerto Rico-sourced granted Act 22 status and another This is a much sweeter deal than
income. Instead, the Commonwealth 600 will get it this year, Puerto Rico’s you can get these days by renouncing
of Puerto Rico has the exclusive right Department of Economic Develop- U.S. citizenship. In 2008, after years
to tax local income as it sees fit. ment & Commerce projects. of stories in FORBES and elsewhere
“The way the U.S. tax code is writ- Puerto Rico? Really? When the about billionaire tax expatriates,
ten, I could be on Mars and be taxed property crime rate in the San Juan including Campbell Soup heir John
on intergalactic income but not if I’m metropolitan area is six times that of Dorrance and Styrofoam cup heir
sitting on this island in the Carib- the New York City area? Kenneth Dart, Congress decided that
bean. It’s kind of in a twilight zone,’’ It depends on how you want your anyone worth more than $2 million
marvels Irvine, Calif. money man- pocket picked. Since 2013, when would have to pay taxes on unreal-
ager Mohnish Pabrai. rate hikes on the wealthy and a 3.8% ized gains above a certain amount
To exploit this special status and ObamaCare tax on net investment ($690,000 for 2015) when giving up
help rescue its economy, Puerto income both kicked in, the top effec- citizenship—just as if they’d sold all
Rico’s Legislative Assembly adopted tive combined federal and state tax their assets.
two laws in 2012 and expanded them rate on long-term capital gains and If you take up residence in Puerto
last year. Act 20 entices hedge funds, qualified dividends has been 32.7% Rico, you get to keep your citizenship
family offices, professional service for New York City residents, 33% in and the dollars in your wallet and

92 | FORBES MARCH 2, 2015


IF I WANT TO
GAMBLE WITH MY
RETIREMENT MONEY
I’LL GO TO VEGAS.
Ally IRA Savings and CDs.
For a safe bet, get an IRA from Ally Bank. Because
your hard-earned retirement savings deserve
a secure place to grow. Just remember, an early
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IRS tax may also apply, so please consult your
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allybank.com | 1-877-247-ALLY

©2009-2015 Ally Financial Inc.


RETIREMENT PLAYBOOK: TAXES

you don’t have to ante up any U.S. anything, even more bullish about corner is a good bet,’’ Prouty opines,
gains tax unless you sell within the what he has called “the Singapore of adding that the current government’s
next ten years. the Caribbean.” While he declined to policies are setting the stage for an
Make no mistake: To benefit from be interviewed for this story, island island comeback.
Act 22 you must become a bona fide officials say Paulson’s investment While he moved for business and
Puerto Rico resident, which means will reach $1.5 billion by year’s end, a tax reasons, Prouty says his week-
being on the island at least 183 days a figure his aides don’t dispute. ends are now “utterly epic,’’ with his
year. You can’t just rent a post office So far Paulson has acquired three family cruising to “pristine beaches
box in San Juan and call it “home” beachfront hotels, including the luxe with funky beach bars” where they
while keeping a $5 million house five-diamond St. Regis Bahia Beach meet up with others from his daugh-
and your ties back in the States. Your Resort and the historic Condado ter’s private school.
business, family, bank and broker- Vanderbilt, which was designed by What about the danger that ei-
age accounts, driver’s license and the same architects as New York’s ther Puerto Rican voters or the U.S.
yacht should all move with you to the Biltmore Hotel but lay dormant Congress will decide the deals being
island. for 15 years until he came along. It handed out to the rich are so good
But you don’t really have to spend reopened in December after a $200 they shouldn’t be true?
183 full days in Puerto Rico. “If you million renovation. Those already approved for Act
arrive at 11:59 at night that is counted Paulson has also snapped up of- 20 and 22 benefits have some protec-

YOU DON’T HAVE TO SPEND 183 FULL DAYS IN PUERTO RICO


TO QUALIFY AS A RESIDENT. IF YOUR PRIVATE JET ARRIVES
IN SAN JUAN AT 11:59 P.M., THAT COUNTS AS A DAY.

as a day in Puerto Rico,” says San fice space and a parking lot in the tion from shifting island sentiment:
Juan tax attorney Edgar Ríos-Mén- financial district, and empty lots on contracts with the Puerto Rican gov-
dez. Conveniently, San Juan is 3½ the boutique-lined Ashford Avenue, ernment guaranteeing favorable tax
hours or less by private jet from New primed for new high-rise condos. treatment for 20 years. Meanwhile,
York’s LaGuardia Airport. Nicholas Prouty, who runs Put- government officials optimistically
(Be careful. Remember, you must nam Bridge, a private equity firm predict that, by 2017, Act 20 and 22
convince not only Puerto Rico’s that targets distressed assets, did call will together create 82,500 jobs,
friendly officials that your residence the moving vans. Putnam picked up more than ten times what they’ve
is on the island but also the possibly two big Puerto Rico projects from generated so far.
hostile auditors from the high-tax ju- bankruptcy court. Then, despite As for a change in the U.S. tax
risdiction you’ve just fled—and they, “some sense of guilt” about uproot- code, that seems unlikely for now,
too, can count partial days to claim ing his 10-year-old daughter, Prouty particularly if Republicans deem it a
you as a resident.) moved Putnam Bridge and his family tax hike. And Washington presum-
Pabrai considers the Act 22 from Greenwich, Conn. to San Juan ably wants Puerto Rico to succeed.
personal tax deal so good that he’s in 2013. After all, if the territory can’t pay
surprised thousands of rich Ameri- Putnam is sinking at least $100 its $71 billion in government debts
cans haven’t already moved to Puerto million into revitalizing the Puerto (currently rated BB with a negative
Rico. Yet he himself has not for the del Rey Marina near the town of outlook by Standard & Poor’s), U.S.
sort of personal reason that could be Fajardo and poured more than $200 investors will take part of the hit.
holding others back, too: His wife, million into Ciudadela, a mixed-use Still, it’s worth remembering this:
Harina Kapoor, started and runs a development in San Juan’s Santurce Some of Puerto Rico’s economic
solar energy company and a yoga stu- district that has now sold all of its problems can be traced to Congress’
dio in California and understandably 312 condo units, primarily to Puerto decision to end, as of 2006, a special
doesn’t want to go. Ricans. “Beachfront property located tax break for drug and other manu-
Billionaire investor John Paul- in a country with an American flag facturers who produced in Puerto
son hasn’t moved, either, but is, if in the courtroom and a CVS on the Rico and exported to the U.S. F

94 | FORBES MARCH 2, 2015


Transforming
the rules of
Engagement
June 9-10 New York City

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ECONOMIC INNOVATION 
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Row 1: Jo Ann Jenkins, AARP, Kimberly Williams-Paisley, Actress, Jessica Simpson, Jessica Simpson Collection, Steve Forbes, Forbes Media, Mary Callahan Erdoes, J.P. Morgan Asset Management, Shiza Shahid,
Malala Fund, Kathy Ireland, kathy ireland Worldwide, Vice Admiral Michelle Howard, United States Navy, Bobbi Brown, Bobbi Brown Cosmetics, Beth Brooke-Marciniak, EY,
Row 2: Robin Roberts, Good Morning America, Moira Forbes, ForbesWoman, Khalida Brohi, Sughar Empowerment Society, Diane von Furstenberg, DVF Studio LLP, Felicity Huff man, WhatTheFlicka.com,
Maysoon Zayid, NYAACF, Tory Burch, Tory Burch LLC, Cherie Blair, Cherie Blair Foundation for Women

Please join Moira Forbes for a revolutionary gathering.


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RETIREMENT PLAYBOOK

COACH NANCY LIEBERMAN, 56


LIFETIME STATS: TWO-TIME OLYMPIC BASKETBALL
PLAYER. COACH OF WNBA’S DETROIT SHOCK, AND
FIRST WOMAN TO BE HEAD COACH OF A MEN’S PRO
BASKETBALL TEAM.
RETIREMENT PLAY: DON’T RETIRE. LIEBERMAN STILL
WORKS AS ASSISTANT GENERAL MANAGER FOR THE
TEXAS LEGENDS OF THE NBA DEVELOPMENT LEAGUE,
AND AS A TV ANALYST. THROUGH HER FOUNDATION
SHE HAS BUILT 13 “DREAMCOURTS” IN UNDERPRIVI-
LEGED COMMUNITIES.
PEP TALK:
“Somebody said to me, ‘Once you stop play-
ing basketball and retire, you’ll never do any-
thing anymore.’ What am I retiring from? Life?
I think the more active you are, the healthier
you are, and your mind is sharp.”
JUSTIN CLEMONS FOR FORBES

96 | FORBES MARCH 2, 2015


CAREERS

UNRETIREMENT
The Social Security and tax laws hold hidden traps and rewards for the
growing army of well-off folks who just keep on working.
BY KELLY PHILLIPS ERB

L
ast year Alice Finch Lee for those born from 1943 through plies: You can earn up to $41,880 in the
passed away at the age of 1954. In practice? There are still hid- months before you turn 66 and will lose
103. The older sister of au- den traps, but there are also some only $1 in benefits for each $3 you earn
thor Harper Lee, she was lucrative opportunities. Here’s what above the threshold. And get this: The
also known for her own you need to know. same $41,880 ceiling applies whether
extraordinary achievement: She was a you turn 66 in February or December.
practicing lawyer until the age of 100. THE EARNINGS TEST SURVIVES Is the earnings test unfair? Not
While most Americans don’t plan The Social Security earnings test, really. You get credit for the docked
on working until the century mark, with its many wrinkles, survives benefits, leading (in most cases) to
many, particularly better-educated until you reach 66. You can claim a larger check later. Still, if you’re
folks, are pushing off retirement or (reduced) benefits at age 62, but if working more than part-time, it
working while “retired.” In 2013, you do you’ll be docked $1 in ben- usually doesn’t make sense to claim
51% of the highest-income quartile efits for every $2 in earned income before 66 and often pays to wait until
of those 65 and older worked. Even you have above $15,720 a year. If you 70—at which point you stop earning
more striking, work accounted for claim benefits midyear, however, you additional delayed retirement cred-
44% of total income in this quartile, can elect to have the earnings test its. Note that if you continue to earn
more than Social Security and pen- applied on a month-by-month basis, more than the maximum amount
sions combined, as James Poterba, with a current ceiling of $1,310 a taxed by Social Security—that’s
president of the National Bureau of month. That means if you get a $118,500 this year—your check at 70
Economic Research, calculates. $1 million bonus in January, and will almost certainly be bigger than it
In theory, federal policy encour- retire and claim Social Security in would have been if you had stopped
ages this. The Senior Citizens’ Free- February, you’d lose benefits only in working at 60 and simply waited
dom to Work Act of 2000 eliminated those months (if any) where your until 70 to claim. Of course, you must
the “earnings test” for Social Security earnings exceeded $1,310. continue to pay Social Security taxes
beneficiaries who have reached the In the calendar year you turn 66, on earned income regardless of age,
“normal” or “full” retirement age—66 a different, more generous rule ap- so this is hardly a giveaway.

MARCH 2, 2015 FORBES | 97


RETIREMENT PLAYBOOK: CAREERS

For married and widowed folks and distributions from retirement you can delay taking money out of a
simply putting off claiming any ben- accounts are even crazier for older 401(k) past the mandatory distribu-
efits until 70 doesn’t necessarily pro- folks who work. For example, begin- tion age, so long as you don’t own 5%
duce the most in total benefits. Some ning in the year you hit 70½, you or more of the company.
married partners will do best by claim- can no longer make either pre- or What if you’re self-employed?
ing Social Security “spousal” benefits aftertax contributions to a traditional Maybe you’ve been contributing to
at 66 and then filing for benefits based IRA—the kind where earnings are a SEP IRA or a Keogh, plans that
on their own earnings history at 70, all tax-deferred and withdrawals are allow you to save pretax up to 25%
the while continuing to work. Widows taxed. Yet you can still make aftertax of your net earnings from self-
and widowers, for their part, should contributions to a Roth IRA, where employment, with a contribution
usually claim “survivor’s” benefits at your investments grow completely cap of $53,000 for 2015. Consider
the earliest age those benefits won’t tax-free. Not so coincidentally, 70½ switching to a “solo” or “individual”
be completely wiped out by earnings is also the age at which you must 401(k): It has a $59,000 overall limit
from work (that could be earlier than start taking required minimum dis- (including a $6,000 catch-up contri-
66) and their own earned benefits at tributions from a traditional IRA, but bution for those 50 and older, which
70, advises Boston University econom- not from a Roth IRA. you don’t get with the others), plus
ics professor Laurence J. Kotlikoff, a While there are no age limits on big advantages if you’ve cut back
Forbes.com contributor and coauthor Roth contributions, there are income your hours and earnings or want to

THE INSANELY COMPLICATED RULES FOR RETIREMENT


ACCOUNTS ARE EVEN CRAZIER FOR OLDER FOLKS WHO
WORK, BUT YOU CAN PLAY THEM TO YOUR ADVANTAGE.

of a new book, Get What’s Yours: The restrictions. For 2015 a couple aged build a Roth nest egg.
Secrets to Maxing Out Your Social 50 or older can contribute $6,500 With the 401(k) you can stuff
Security (Simon & Schuster). each ($13,000 total) to a Roth IRA, if 100% of the first $24,000 you earn
their modified adjusted gross income into a 401(k) as a pretax or Roth
YOUR BENEFITS WILL BE TAXED is below $183,000 and one of them “employee” contribution and then
Anywhere from 0% to 85% of your has that much in earned income. (No, contribute another 25% of earnings
Social Security benefits are taxable, you can’t fund a Roth from invest- pretax as an “employer” contribu-
depending on how high your “com- ment income.) Partial contributions tion. And while you must start taking
bined” income is. What’s that? Your are allowed up to $193,000. For minimum withdrawals from all of
normal adjusted gross income, plus singles and heads of households a these plans at 70½ (regardless of
your tax-exempt muni bond interest, full $6,500 contribution is allowed work status), you can roll your 401(k)
plus one-half of your Social Secu- up to $116,000, and a partial one up Roth money (both contributions and
rity check. When combined income to $131,000. (For 2014 contributions, earnings) to a Roth IRA, tax-free.
rises above $44,000 for a couple, or which may be made until Apr. 15, Here’s the play: Once in the Roth
$34,000 for a single, up to 85% of So- slightly lower income limits apply.) IRA, the funds can continue to grow
cial Security benefits may be subject Fortunately, there are other op- tax-free with no mandatory distri-
to tax. While some affluent seniors tions that allow you to continue butions during your lifetime. You
living off investments may be able shoveling earnings into tax-favored can withdraw cash, if you need to,
to keep their income low enough to retirement accounts. Whatever your without raising your income and tax
avoid the full 85% hit, seniors who age, you can continue to make contri- rate, or you can leave a tax-free kitty
work should assume 85% of their So- butions to any plan your employer of- to your heirs. Note: Not all providers
cial Security benefits will be taxed. fers, including a traditional 401(k), a of solo 401(k)s offer the Roth option.
Roth 401(k) and a Simple IRA. While Vanguard, E-Trade, T. Rowe Price,
RETIREMENT SAVINGS GET TRICKIER you must start taking required mini- Merrill Edge and TD Ameritrade do;
The insanely complicated rules mum distributions from a Simple Fidelity Investments and Charles
surrounding both contributions to IRA at 70½, if you’re still working, Schwab don’t. F

98 | FORBES MARCH 2, 2015


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RETIREMENT PLAYBOOK

INCOME

TAKEOVER TAX DODGE


Is an unwanted capital gain staring you in the face?
Turn it into a Pomona charitable gift annuity.
BY WILLIAM BALDWIN

T
wo American pastimes: How to mitigate the damage? Some- last for her lifetime. At that point her
retirement planning and time before the deal closes, transfer the income will be lower and she will be
tax dodging. They come shares to a college in return for a “chari- living in a state with lower taxes. Her
together in an investment table gift annuity,” a contract that gives tax brackets, we hypothesize, will go
recipe that you should you a fixed annual payout for life. The down by a third, to 33% and 20%.
consider if you are about to lose a stock payout may be less than you’d get from Before the merger closes, Jane
in a cash merger. a commercial annuity, but the shortfall sends the shares to Pomona and takes
The idea: Hand off your soon-to-be- goes to a good cause and the tax sav- back a deferred annuity. It will pay
liquidated shares to a college, turning ings go to a very good cause—your bank $11,120 a year, beginning when she is
some of the money into a contribution account. 70. If she dies before then, her heirs
and most of it into a retirement payout. Many colleges with big endowments get nothing.
The strategy is the most compelling for have CGA programs. Mostly these deals Calculations based on IRS actuarial
a woman who is in her peak earning are aimed at grateful grads. One col- tables and an interest factor put the
years and fairly close to retirement. It lege, Pomona, has terms so attractive present value of Jane’s future income
also works, although not as powerfully, that well over half its participants are stream at $90,000. This means that
for investors who don’t quite fit that nonalumni. In the right circumstances Jane is using only 90% of her Acme
pattern. a Pomona CGA beats out a commercial shares for her own benefit. The other
The first law of portfolio tax plan- annuity purchased with the takeover 10% of them are being donated to Po-
ning says that you should hold on to proceeds. mona. When she does her 2014 taxes
winners. But sometimes a sale is be- Let’s suppose that Jane Doe is sitting she can claim a $10,000 charitable
yond your control. You behave your- on Acme stock that she bought years deduction.
self and then along comes an all-cash ago for $20,000 and that is soon to be When Jane retires she can amortize,
merger. acquired for $100,000. She’s a 60-year- against her $11,120 annual income, the
It’s a nice problem to have if the old executive with a high salary. What $90,000 of capital she has invested in
merger kicks up the price of the stock, with state income tax and the various the annuity. The actuarial tables give
but still it’s a problem. If you bought enhancements to the 39.6% federal her a 16-year life, so she can deduct
auto parts maker TRW at $3 a share six bracket, her marginal tax rate is 50% for $5,625 a year, leaving her with $5,495 of
RICH FRISHMAN FOR FORBES

years ago, you are now threatened with ordinary income. For long-term capital ordinary income.
liquidation at $105.60, as a German gains, it’s 30%. A further breakdown determines
acquirer wraps up a tender offer. State Jane is planning to retire at 70 and that the capital being recovered consists
Tktktktkktktktkktktktktkktktkktktkktkkt
and federal tax on the gain will prob- will be converting some of her savings 80% of gain and 20% of original cost
tktkktktktktktkttktktktktktktktktktktkktktktk
ably eat at least a fourth of this asset. into a fixed monthly payout that will of the Acme position. So, of the $5,625,

100 | FORBES MARCH 2, 2015


COACH LENNY WILKENS, 77
LIFETIME STATS: STEERED SEATTLE
SUPERSONICS TO 1979 CHAMPIONSHIP.
SECOND-WINNINGEST COACH IN NBA
HISTORY, WITH 1,332 WINS.
RETIREMENT PLAY: SINCE RETIRING AT
AGE 67, WILKENS HAS TRAVELED THE
WORLD, INCLUDING A STINT CONSULTING
TO SOUTH KOREA’S NATIONAL TEAM. HIS
CHARITABLE FOUNDATION IS DEVOTED TO
CHILDREN’S HEALTH CARE AND EDUCATION.
PEP TALK:
“The thing to do is not just to run and
jump into anything. I tried to read and
learn about things. Everything ends.
If you surround yourself with smart
people and have them help you, then
you can secure your future.”

MARCH 2, 2015 FORBES | 101


RETIREMENT PLAYBOOK: INCOME

WHERE CAPITAL GAINS LOOM


THESE COMPANIES, THE SUBJECTS OF PENDING OR THREATENED MERGERS, WILL CREATE TAX PAIN FOR INVESTORS WHO GOT IN
CHEAPLY AND DON’T HAVE AN EXIT PLAN.

MARKET CAP RECENT GAIN OFF


TICKER TARGET ($BIL) PRICE LOW1 ACQUIRER

TRW TRW AUTOMOTIVE HOLDINGS $11.4 $103 7,377% ZF FRIEDRICHSHAFEN


PL PROTECTIVE LIFE 5.5 70 2,390 DAI-ICHI LIFE INS
NPSP NPS PHARMACEUTICALS 4.9 46 1,576 SHIRE PHARMACEUTICAL
MWIV MWI VETERINARY SUPPLY 2.4 190 859 AMERISOURCEBERGEN
SAPE SAPIENT 3.5 25 666 PUBLICIS
GTIV GENTIVA HEALTH SERVICES 0.7 20 594 KINDRED HEALTHCARE
DRC DRESSER-RAND GROUP 6.2 80 587 SIEMENS ENERGY
OVTI OMNIVISION TECHNOLOGIES 1.6 27 565 SHANGHAI PUDONG2
PETM PETSMART 8.1 82 515 BC PARTNERS2
RVBD RIVERBED TECHNOLOGY 3.3 21 480 ONTARIO TEACHERS2
FDO FAMILY DOLLAR STORES 8.7 76 421 DOLLAR GENERAL
SIAL SIGMA-ALDRICH 16.4 138 397 MERCK KGAA
MHGC MORGANS HOTEL GROUP 0.2 7 361 YUCAIPA
PTRY PANTRY 0.9 37 321 MAC’S CONVENIENCE STORES
CNL CLECO 3.3 55 216 BC INVESTMENT 2
ALL DATA AS OF JAN. 29. 1RECENT PRICE VERSUS 10-YEAR LOW. 2AND OTHERS.
SOURCE: S&P CAPITAL IQ.

$4,500 gets taxed at the long-term gain nuity, and so she gets only $8,018 a year about tax brackets and Acme.
rates and $1,125 is not taxable at all. pretax. After taxes she pockets $6,846 a A wealthy annuitant whose tax
On the bottom line is an aftertax an- year until she turns 86 and $5,372 a year bracket is destined to stay high also
nual income from the annuity of $8,407. thereafter. wins with the college play, although not
After Jane turns 86 the capital invest- This is a screaming win for Pomo- as much as Jane and Jack.
ment in the annuity is fully recovered na’s annuity. How is that possible? Is Pomona being too generous?
and the entire income stream is taxed. The essence of CGAs is timing. With Probably not. “Yale pays lower rates be-
Her take-home at that point drops to help from the college Jane is able to cause its alumni are very philanthrop-
$7,450 a year. postpone the Acme gain until later (as ic,” says Robin Trozpek, assistant vice
That charity deduction puts money much as 26 years later). The defer- president of capital giving at Pomona.
in Jane’s pocket right away. If her in- ral allows Jane to put more capital to Her college’s strategy gets the attention
come tax bracket is 50%, her deduction work inside the retirement product, and of investors who are not affiliated. Two
tax bracket is somewhere around 45%. when the government is eventually paid recent transactions involved Covidien
(Why lower? Because charity deduc- off, it’s at a lower tax rate. In this respect shares that were about to be acquired
tions don’t protect you from either the annuity acts a lot like an IRA. by Medtronic, and neither came from a
the ObamaCare tax or a weird penalty Two other things work in favor of Pomona grad.
related to adjusted gross income.) So, the college annuity. One is that com- Do you own any of the stocks in our
an upfront $4,500 goes into the plus mercial annuity vendors have to com- takeover table? You have three choices.
column for the Pomona deal. pensate sales agents; colleges don’t. 1. You can take the cash and the up-
Now let’s see what happens if our Another is that Jane is able to take a front tax hit. If you buy a commercial
heroine sits still while the IRS locomo- $10,000 deduction for a gift of Acme annuity with what’s left, you’ll have
tive runs over her. The merger puts shares that cost her only $2,000; the this small advantage: If you die young,
$100,000 in her hands, including a $8,000 of appreciation on those shares your executor might be able to get some
capital gain of $80,000, on which the is never taxed. tax benefit out of a deduction for the
tax is $24,000. That leaves her with Jack Doe would get the same unrecovered portion of your annuity
$76,000. She puts $4,500 aside (to make payout as Jane from the college, but purchase price.
the comparison fair with the charitable at New York Life he’d get 10% more 2. You can do a CGA with your alma
gift annuity) and has $71,500 left to buy than Jane. (Commercial insurers often mater. This makes a lot of sense if you
a commercial annuity. give nicer annuities to males on the are giving to the college anyway.
New York Life pays the same as assumption that they’ll die younger.) 3. You can have a chat with the gift
Pomona—11.12%. But in this scenario Still, Jack comes out ahead at Pomona, office at Pomona. F
Jane has less capital to put into the an- if we make the same assumptions Statistics research: Andrea Murphy.

102 | FORBES MARCH 2, 2015


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RETIREMENT PLAYBOOK

COACH MIKE DITKA, 75


LIFETIME STATS: LED 1985
CHICAGO BEARS TO SUPER BOWL
CHAMPIONSHIP. WON 121 GAMES IN
14 SEASONS.
RETIREMENT PLAY: DITKA
LEVERAGED HIS DRILL SERGEANT
PERSONA INTO A LUCRATIVE
RETIREMENT AS A COMMENTA-
TOR, PITCHMAN AND RESTAURANT
INVESTOR. NOW HE SPENDS MUCH
OF HIS TIME PLAYING GOLF AND
SUPPORTING CHARITIES LIKE GRID-
IRON GREATS, A FUND TO BENEFIT
RETIRED NFL PLAYERS IN NEED.
PEP TALK:
“I paid off my debt. I have
no credit card debt, I have no
house debt. If you make
$5 million but spend $6 mil-
lion because of foolishness,
it’s not going to work. The
main thing was don’t spend
everything you make. Put
CHRIS MCENIRY FOR FORBES

it away, invest it—because


nothing lasts forever.”

104 | FORBES MARCH 2, 2015


SECOND ACTS

THE CROSS-POLLINATOR
Raised Catholic in the Philippines, Angelica Berrie now runs a charity that
gives 40% of its money to Jewish causes, including unconventional ones,
such as helping gay and transgender Israelis.
BY ASHLEA EBELING

T
hey met in Manila in 2001 FORBES list of the Best Small skydive. “How cool is that, to pursue
1989. Angelica Urra was Companies, with revenues of $302 what you want?’’ asks Berrie, who at
33, a convent-educated million and net profits of $44 million. 59 has checked off all those goals and
Filipino of Spanish and But on Christmas Day 2002 Russ, keeps adding new ones.
Chinese descent who a type 2 diabetic, died of a massive At the top of her to-do list, how-
had built a little business manufac- stroke, leaving the Russell Berrie ever, was figuring out how to make an
turing and exporting papier-mâché Foundation assets valued at $420 mil- impact with the foundation’s dollars.
jewelry from her home country. lion, including 43% of the company’s For advice, she turned to Forbes 400
Russ Berrie was 55, a Bronx-born stock, then worth $340 million. member Lynn Schusterman, whose
secular Jew who started out selling At first Angelica, who had headed husband, Oklahoma wildcatter
Fuzzy Wuzzies (tiny creatures bear- up strategic planning, took over as Charles Schusterman, died in 2000,
ing greeting card messages) from CEO of the company, as well as presi- leaving her to run their $73 million
a rented New Jersey garage in the dent of the foundation. But running (now $2.3 billion) foundation.
1960s and had taken his burgeon- the business without Russ wasn’t as “We were kind of trailblazers,
ing business in tchotchkes and teddy much fun, and there were problems the two of us women running major
bears public in 1984. At their wedding as the company digested its 2002 foundations,” says Schusterman, who
in 1992 (her first, his fourth) their acquisition of the Sassy baby prod- flew to New Jersey to meet with Ber-
cake was topped with pink- and blue- ucts line. So in May 2004 she relin- rie and found they had other shared
haired rubber trolls, then among Russ quished the CEO job to a former Toys interests too. In 2007 their founda-
Berrie & Co.’s biggest sellers. “R” Us exec and turned to a bucket tions jointly sponsored a conference
For the next decade Russ and An- list (she had made it when Russ died) on building more inclusive Jewish
gelica worked together building up of things she wanted to do by 60. giving, such as giving to groups sup-
both his business and his charitable Among its entries: convert to Juda- porting LBGT Jews, Jews of color
giving. The company even made the ism, meet the Pope, learn to drive and and women. Last September, right

MARCH 2, 2015 FORBES | 105


RETIREMENT PLAYBOOK: SECOND ACTS

after the most recent Gaza-Israel hospital to her home village. were sinking. The foundation finally
fighting, they were in Jerusalem to- But bigger grants, Berrie insists, ended up selling most of its shares in
gether sponsoring the Sacred Music must still pass her “Would Russ do 2006 to a private equity firm for $99.5
Festival, a celebration of music of it?” test. In 2005, for example, the million, leaving it with $298 million
Christians, Muslims and Jews. foundation made a $26 million gift in liquid assets at the end of 2006.
Indeed, what looks at first glance (matched by the Israeli government) (Renamed Kid Brands, the company
like a scattershot approach to grant- to create a nanotechnology institute got rid of the gift business in 2008 to
making by the Berrie Foundation has at Technion in Haifa. “This feels concentrate on baby products. Both
an underlying logic. While further- authentic to who Russ was,” she says. Kid Brands and the gift business have
ing her late husband’s diverse com- “It’s in keeping with his entrepre- since gone bankrupt.)
mitments to diabetes research ($68 neurial spirit.” In 2011 Berrie coauthored a
million given since 1997), humanism One quintessentially Angelica book, A Passion for Giving, hoping
in medicine, Jewish causes, New project is the John Paul II Center to inspire other philanthropists. Her
Jersey and entrepreneurialism, Ber- for Interreligious Dialogue in Rome, advice? Don’t go it alone. Among the
rie has added as her personal mission which she set up in 2007 at the resources she credits with helping
the “cross-pollination” of cultures Pontifical University of St. Thomas her find her philanthropic way: a
and ideas and making connections Aquinas in Rome to fund priests Montana spiritual retreat sponsored
between people. “Usually men who pursuing graduate degrees in interre- by Peggy Dulaney, a fourth-genera-

AS A GROWING NUMBER OF THE RICHEST AMERICANS PLEDGE


TO LEAVE HALF OR MORE OF THEIR WEALTH TO CHARITY,
MORE WIDOWS WILL BE LEFT TO RUN LARGE FOUNDATIONS.

made the money frame the conversa- ligious studies. Among the 60 fellows tion Rockefeller philanthropist. She
tion of what they want to do,” Berrie who have gone through the programs also reached out to Sanford Bern-
says matter-of-factly. “A wife can (studying with a rabbi, among other stein’s widow, Mem Bernstein, who
have her own personality and add things) is a Nigerian who decided on is charged with spending down the
to it.” It’s an issue more widows will the priesthood after a priest in the Avi Chai Foundation by 2020, to help
face, as a growing number of the rich- next village was beheaded. Berrie her decide how quickly to give away
est Americans pledge to leave half or personally accompanies the fellows assets. Currently the Russell Berrie
more of their wealth to charity and on an annual ten-day trip to Israel. “I Foundation is making around $20
women continue to outlive their typi- want to know all of them. God forbid, million a year in grants and plans
cally older husbands. say, one becomes Pope!” says the now to exhaust its funds by 2033, if not
In Israel Berrie is constantly Jewish Berrie, who has directed $7.8 before.
seeking out agents of change, mak- million to the project. When she’s not traveling, Berrie
ing small grants, for example, to a As those trips demonstrate, Berrie keeps fit with a 5- to 10-mile daily
Palestinian woman who teaches her is an unabashedly happy practitioner walk along the Hudson River. But
peers (in a discreet, unmarked facil- of hands-on philanthropy: “You have with her 60th birthday looming, she
ity) about birth control and a bedouin to do things that feed your soul to see worries about a succession plan.
woman who helps divorcées start that there’s more than just having A stepson, Scott Berrie, is the only
new lives. Her giving in her native money and giving it away. It’s a very person on Russ Berrie’s handpicked
Philippines, through both the Berrie personally rewarding journey.’’ She six-person foundation board who is
Foundation and a small one of her considers philanthropy her focus and younger than she is; the oldest is 91.
own, often plays off her Jewish and Kate’s Paperie, a boutique paper store “How do we transmit what we
New Jersey connections. She sent she owns in Manhattan, just a hobby. know of Russ to future trustees?” she
typhoon relief through the American The biggest problem Berrie has asks. For now, the office joke is that if
Jewish Joint Distribution Com- confronted at the foundation was she does something wrong, micro-
mittee and brokered a donation of diversifying out of Russ Berrie & manager Russ will e-mail her from
used equipment from a New Jersey Co. stock as the company’s fortunes heaven. F

106 | FORBES MARCH 2, 2015


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COMPANIES PROVIDES FINANCIAL SERVICES INCLUDING TRADING, INVESTING, INVESTMENT ADVISORY SERVICES AND RELATED BANKING
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FORBES LIFE
TRAVEL

A New Place
In the Sun
With the opening of the Belle Mont Farm
resort and a bold plan for expansion, can
St. Kitts become another St. Barts?
BY HANNAH SELIGSON

A
luxury resort that starts at over the island. By hiring lo-
$2,000 a night might seem like cally, Kempadoo believes
a strange way to bring about he can retain 75% or 80%.
social change but not if you are “It’s a purpose with a
Val Kempadoo. The 52-year-old hotel wrapped around it,”
Trinidadian entrepreneur is the mastermind he explains. “This is my
behind one of the most anticipated hotel open- revolution.”
ings in the Caribbean: Belle Mont Farm, set on Even the Kittitian Hill
verdant hills between Mount Liamuiga and the golf course is part of his
Caribbean Sea on the island of St. Kitts. social and environmental
With its 84 guesthouses and 7 four-bed- plan. The Ian Woosnam-
room farmhouses, Kempadoo’s hotel is trying designed course is ed-
to make hospitality terms such as “sustain- ible—think mango picking
ability,” “eco-friendly” and “social responsi- on the ninth hole—and
bility” actually mean something to the local closed one day a week for
economy. Belle Mont Farm, which opened in weeding, the easiest way to
December, is part of a 400-acre Kempadoo keep a chemical-free golf
project situated on organic farmland, known course in prime condition.
as Kittitian Hill. “This venture is about rede- Naturally, Kempadoo
fining sustainability and social justice in the plans to the run the whole
Caribbean tourism industry,” says Kempadoo, $400 million develop-
who worked as an organic farmer in his youth. ment, which will even-
To start, almost everything that is served in tually include a spa, an
Belle Mont Farm’s Kitchen restaurant—over- open-air cinema and a
seen by executive chef Christophe Letard, a lower-priced 200-room
veteran of Relais & Châteaux properties in hotel, entirely on renew-
Europe and the Caribbean—is either grown able energy.
organically on-site or sourced from St. Kitts or Social activism is cer-
nearby Nevis. Belle Mont Farm also features tainly not new for Kempa-
local architecture and predominantly local staff doo. In Trinidad he cofounded two political Paradise found:
and labor (around 90%), and seeks to establish parties. Later came his more capitalist phase. St. Kitts will no longer
be under the radar
a center for Caribbean culture on its premises. In 2005 Kempadoo started Terra Forma De- thanks to luxurious
It’s an endeavor, however, that goes be- velopments, which designed Warner Park, Belle Mont Farm,
yond farm-to-table dining with Caribbean the national cricket and football stadium of set on a 400-acre
property that brings
flavors. There’s a clear economic mission St. Kitts and Nevis. farm-to-table cuisine
embedded in Kempadoo’s plan. In the rest Like a Caribbean Steve Jobs, Kempadoo to the Caribbean.
of St. Kitts’ hospitality industry, Kempadoo has an unwavering commitment to the ethos
claims, only around 10% of revenue stays on and style that govern his Caribbean creation.

108 | FORBES MARCH 2, 2015


the grandeur of stone and arched TRENDING
columns with a strong Caribbean in-
fluence, basing the villas on designs What the 65 million
common in the West Indies. Forbes.com users
With Belle Mont Farm, Kempadoo are talking about.
For a deeper dive go to
expects to make St. Kitts, which is
FORBESLIFE.COM
lacking in high-end hotels (although
the Park Hyatt recently broke ground
PERSON
on the other end of the island, at HARPER LEE
Christophe Harbour), a new destina- Fifty-five years after
tion for the Gulfstream set. And yes, a the release of To Kill
new private airstrip is in the works. a Mockingbird, the
88-year-old author
What won’t be apparent to
will publish a sequel
guests is that Kittitian Hill was a (featuring an adult
feat of clever financial engineer- Scout Finch) in July.
ing conceived by Kempadoo, who
COMPANY
says he invested $3.5 million of his CHEVROLET
own money in the project. The rest At a base price
came from outside investors, mostly of $79,000 the
through the St. Kitts Citizenship by 2015 Corvette Z06
delivers all of the
Investment Program. In exchange
performance—and
for the country’s passport, foreign- interior luxury—of a car
ers were asked to make a minimum costing twice as much.
$400,000 investment in govern-
ment-approved projects. Kempadoo
was the first developer in St. Kitts
to use the program to fund
a project. And to much
“I have become very defensive about my vi- success: 85% of his investors came
sion,” he says. Which means you won’t find through it.
a hamburger or steak on offer, since there is Leading up to the opening of
no local beef industry. (Kempadoo is also a Belle Mont Farm, Kempadoo went
lifelong vegetarian.) And there will no doubt on a global road show. “I sold it off pictures of
IDEA
be guests who want Alaskan king crab and a bunch of grass,” he recalls. Albeit grass that EATING INSECTS
Norwegian salmon, now and forever absent came with panoramic ocean views. With his With more restaurants—
from the menu. But that is simply not the stirring pitch about a sustainable hotel in the including the Tokyo
Kempadoo way. Caribbean—and the promise of a passport, outpost of Denmark’s
For those who imagine that resort sustain- particularly appealing to elites from develop- renowned Noma—
serving dishes with
ability means open-air tents and backpacks, ing countries in eastern Europe, Asia and the crawlies, finding a bug
Belle Mont Farm offers a pleasant surprise. Middle East—Kempadoo sold $100 million on your plate may no
The guesthouses and villas are stocked with worth of preconstruction real estate. longer be a reason to
Frette linens and towels, four-poster beds, As for whether Kittitian Hill represents send back dinner.
STEPHEN VALASCO / FLICKR

individual plunge pools and private verandas. the perfect synthesis of his social values, en-
Even the outdoor bathrooms are fitted with vironmental principles and business acumen,
numerous luxuries, including claw-foot tubs. Kempadoo is diplomatic.
The renowned architect Bill Bensley—who “I would ultimately like the ownership
designed the Four Seasons on Koh Samui, structure to be returned to the people of
among other luxury properties—brought St. Kitts,” he says, equal parts capitalist and
a style to Belle Mont Farm that combines idealist. “Maybe through an IPO.”

FINAL THOUGHT

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FINAL THOUGHT
“Enlightening editorial
THOUGHTS writers is even more difficult
than educating educators.”
—MALCOLM FORBES

ON NEWSPAPERS
“A good newspaper, I suppose,
is a nation talking to itself.”
—ARTHUR MILLER

“I read the newspapers avidly.


It is my one form of continuous fiction.”
—ANEURIN BEVAN

“I regard the fact that I don’t write for


the newspapers as a source of happiness
in my life. My purse suffers, but my
conscience is glad of it.”
—GUSTAVE FLAUBERT

“A nation that is afraid to let its


people judge the truth and falsehood
in an open market is a nation that is
afraid of its people.”
—JOHN F. KENNEDY

“News is what somebody somewhere wants


to suppress. All the rest is advertising.”
—LORD NORTHCLIFFE
“Citizen Kane Meets Adam Smith: Long considered a monopoly
or ‘franchise’ business where high profitability was all but “Once a newspaper touches a story, the facts are lost
guaranteed, newspaper publishers are beginning to hurt. Profit forever, even to the protagonists.”
margins are stagnant, even for those daily newspapers that —NORMAN MAILER
dominate their local markets. Media analyst John Morton says:
‘The era when newspapers could count on double-digit volume “Light in a messenger’s eyes brings joy to the heart,
and good news gives health to the bones.”
increases in recovering economies is behind us. I don’t think
—PROVERBS 15:30
they’ll ever be seen again.’ ”
—FROM THE FEB. 20, 1989 ISSUE OF FORBES
“Four hostile “News travels
OTHER THOUGHTS FROM THAT ISSUE: newspapers are more fast in places where
to be feared than a nothing much
IBM-TV? “The line between ‘television’ and ‘computers’ is blurring thousand bayonets.” ever happens.”
every day. The new television/computers—if you will, telecomputers—
will far exceed HDTV in presenting news and entertainment programs, —NAPOLEON —CHARLES BUKOWSKI
as well as interactive games, educational materials and commercial
opportunities for active users.”
“Truth itself becomes suspicious by
BIRD … PLANE … SUPERNET! “The sudden proliferation of
microcomputers, now almost 20 million of them, is precipitating the being put into that polluted vehicle.”
interconnection of computers and proprietary networks into ‘supernets’— —THOMAS JEFFERSON
networks too large and diffuse to be controlled by any single company.”
SOURCES: THE TIMES BOOK OF QUOTATIONS; GOODREADS.COM;
THE PRESIDENTIAL PAPERS, BY NORMAN MAILER; HAM ON RYE, BY CHARLES BUKOWSKI;
MEMOIRS, CORRESPONDENCE AND PRIVATE PAPERS OF THOMAS JEFFERSON, EDITED BY T.J. RANDOLPH.
112 | FORBES MARCH 2, 2015
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