Genetics, Data, Money and Gambling

Over the past couple weeks, I have been lucky enough to get some great reading done. Why Beautiful People Have More Daughters, Rigged, The Poker Face of Wall Street, Made to Stick, The Imperfect Heart, and Super Crunchers are the books I have been spending my time enjoying. "

Reading the book "Super Crunchers" - we learn about how regressions help companies make more accurate predictions about, for example, what a person might buy or prefer.

The book "Super Crunchers" made an example of predicting future wine prices based on a formula that accounted the number of rainy days in a growing season and other variables. The formula was very accurate. Some dating sites claim to have developed metrics about what a person might like in a mate based upon a set standard number of questions. Even if it's not what they think they would want. A lot of Web 2.0 sites are using regression data from consumer behavior to fine tune the site's services and offerings." - Highly recommended


An Invisible Heart is a play on words for the economic idea of the invisible hand that regulates the market. It is an endearing book that makes economics enjoyable and can help any lay person understand the major concepts, which make Economists stay in their fields. A well respected friend recommended it to me, and I am now recommending it to you.


Made to Stick was a follow up on Malcolm Gladwell's book the Tipping Point. The Tipping Point explains the Law of the Few (Connectors, Mavens and Salesmen), the Stickiness factor, and the power of context. Made to Stick explains the Stickiness factor. "The book's outline follows the acronym "SUCCES" (with the last s omitted). Each letter refers to a characteristic that can help make an idea "sticky":

* Simple — find the core of any idea
* Unexpected — grab people's attention by surprising them
* Concrete — make sure an idea can be grasped and remembered later
* Credibility — give an idea believability
* Emotion — help people see the importance of an idea
* Stories — empower people to use an idea through narrative
I would definitely recommend the book "Made to Stick" for any person who wants to understand how to make an idea be best presented to the world.


Rigged is Ben Mezrich's follow up to his widely popular "Bringing down the House" book. Described by Amazon as about a character who, "After conquering the hallowed halls of Harvard Business School, he enters the testosterone-laced warrens of the Merc Exchange, the asylumlike oil exchange located in lower Manhattan. A place where billions of dollars trade hands every week, the Merc is like a casino on crack, where former garbagemen become millionaires overnight and where fistfights break out on the trading floor.

This ordinary kid has traded Brooklyn for the gold-lined hotel palaces of Dubai. He keeps company on the decks of private yachts in Monte Carlo—teeming with half-naked girls flown in by Saudi sheiks—and makes deals in the dangerous back alleys of Beijing."

Unfortunately, Rigged falls way short of being necessary for the pages it was written on. It should have remained as a good journal article.


Why Beautiful People Have More Daughters is a great introduction to where Evolutionary Psychology has come in its short history. A mix between science, sociology, and econometrics. I enjoyed their "Savanna Principle" explanation, but unfortunately - the author's might use it to try to explain a little too much; from woman's lower pay to why sons reduce the chances of having a divorce.

The Pokerface of Wall Street was a let down after the 1st chapter. Aaron Brown does give some great comparisons to what wins in poker and trading. Most of it comes down to being about to identify opportunities, take and manage risk. Brown also throws off my interest on the non Texas Hold'em gambling examples.

Three Signs of a Miserable Job

This book definitely could be taken as touchy feely. As a soft approach to management. As what managers should not waste their time with. Anytime spent on this crap is not focusing on the revenue growth or how it moves to the bottom line. Now maybe that is true, but in the services industry; restaurants, hotels, consultancies, auto-mechanics…anyone working with anyone else, other than revenue and profitability margins, customer service and satisfaction are directly or indirectly correlated to employee satisfaction and enjoyment with their job. “The dissatisfaction of employees has a direct impact on productivity, turnover, and morale, all of which eventually hit a company’s bottom line. What we learn is it’s not always about the money (or at least, just about the money).

Patrick Lencioni (the Author) proceeds to discuss how many CEO’s and professional athletes can feel the same sense of dread going to their jobs as a fry-cook or Tupperware salesman. People making millions of dollars a year can be miserable in their jobs, while some people who make little or no money can love what they do – like a volunteer or a high school volleyball coach. The author decides it is not a problem of ‘bad’ employees, that some jobs just aren’t as glamorous as others, or that if only a person made ‘x’ amount more an hour or a year- he’d be much more happy with his job.

Lencioni argues that instead, it is the manager’s job and responsibilities to not only motivate and train their employees, but to actually help them become aware of how they fit into the bigger picture. There is no reason the most adults who work over 8 hours a day at their jobs are dissatisfied. Patrick goes on to argue that the ‘Three Signs’ are Anonymity, Irrelevance, and Immeasurement. He feels that these three factors will make any job miserable, and it is the manager’s responsibility to help employees measure their contributions and find how what they do is relevant while also finding a way to be genuinely interested in their lives. People sometimes have some of one or two of these at their work but those truly happy with their jobs have a great balance and culture that addresses these issues.

Anonymity – People cannot be fulfilled in their work if they are not known. All human beings need to be understood and appreciated for their unique qualities by someone in a position of authority.

Irrelevance – Everyone needs to know their job matters, to someone. Without seeing a connection between the work and the satisfaction of another person or group of people, an employee simply will not find lasting or fulfillment.

Immeasurement – People need to be able to gauge their progress and level of contribution for themselves. They cannot be fulfilled in their work if their success depends on the opinions or whims of another person, no matter how benevolent the person may be. Without a tangible means for assessing success or failure, motivation eventually deteriorates as people see themselves as unable to control their own fate.

What is amazing about the problem and remedy that Lencioni describes is that it is effective and simple, but barely used. It seems obvious and ridiculously simple that most people might think that it doesn’t need to be said. Well it does. Everyone deserves to find fulfillment in their job and not spend their Sunday’s fretting over the upcoming week.

Money and Banking - Subprime Crisis

Thanks to a good friend, I was able to sit in on a special guest lecturer, Kent Vickery from Carrington Capital, discussing the reasons, importance, causes, and predictions of the recent subprime situation. In Alex Gould's Econ 111: Money and Banking Course.


To preface the lecture - Alex discussed how 1. you don't want to be in a subprime mortgage - so keep the FICO score above 650 (a score between 720-850=99% chance to pay back) and 2. the psychological impact of the herd mentality. (They also compared the VC community to lemmings...another topic :) )

*for scale - in today's terms - the S&L Crisis would be $800B of losses

Kent's Points of Subprime:
1. Subprime Crisis is Nasty - $400 Bil of estimated losses
2. $300 Bil losses in US markets already
3. Ripple effect - A. US: property meltdown - 44.5M households will lose approximately $223Bil in wealth over 2008 and 2009
B. Globally - technical default after subprime resets
4. Disgruntled investors will be leading in litigation's to Investment Banks
5. History and How - went through 2/28 arm loans and just with a house of $675k house value and a loan of $417k, the difference in payments over 3 years between a conforming vs. a non-subprime borrower is $59,000 after taxes! At resets, price jump is too high and people cannot make their payments. "When things get tight, the BEAST must eat."
6. "Shadow Banking Bomb" CEO of PIMCO, anatomy of subprime CDO. People's ability to refinance/repay increases as their equity and value increases.
7. GSAMP Slide - Deutsche Bank Trust Reports: 12 Tranches, 10 investment grade
7/10 downgraded to junk, 4 have been wiped out. Cramer video - "no idea how bad it is", Idea: let market wash itself out, but election year so not politically possible. Goldman Sachs may have shorted the market when they saw the tranches slump.
8. Ripple turns into a tidal wave - like Enron crisis - or fall of LTCM

In banking "devil is in the details,"
Interesting idea from Ben Stein - investment banks (Goldman) center point for class-action lawsuit. Necessary information for litigation: EMAIL TRAFFIC: b/t Goldman and Deutsche Bank, outside underwriters, and credit agencies. They had default information and were still selling CDOs - so they made money on the shorts...shady.

Alex ended the final class with four points:
1. Cherish your relationships
2. Options are valuable
3. Trust your gut
4. Go out and get it

The worst thing that could happen to you; too rich, too beautiful, and peak too soon.

He then ended with a great speech. Anna Quindlen's commencement address to Villanova University, Friday 23 June 2000.

Copycats

In economics - when there is an excess profit in a market - companies will enter the market until the supply increases to a point, which lowers the price of the product and eats away at the profit. This idea holds true in all(most I can think of) marketplaces; recently - lemonade stands, airlines, restaurants, and recently technology startups.

"Can You Clone Tangler For $1,500?" is the headline of a Techcrunch article today.

"Someone in Turkey is willing to pay up to $1,500 to anyone who can “clone Tangler.” But don’t go too far - the listing also states “do not steal tangler.com images and do not violate copyrights. The clone should have the same functions, but the design should look different.”

A company that offers this is http://www.getafreelancer.com/. It is hard to imagine getting the best quality in just two weeks for <$1,500 to try to mimic some of the top web 2.0 technology site out there.

We'll see how this goes...

Financially Blogging again!

With markets as volatile as they have been recently, I felt it was about time for me to start blogging again. Just recently I have come across a couple of very solid tools for different investment strategies. Unfortunately, sometimes, the more information we have, the higher chance that we get confused and miss glaring opportunities.

A few recent financially-oriented companies have been popping up and have been very impressive.

Market Simplified is just that. Market Simplified is a financial vertical search tool which attempts to provide concise semantic answers to financial queries. You can ask it any question you want about the market, equities, and investment strategies - and it should have an answer in 10 seconds flat.

Not to be outdone, FirstRain has come out with a very similar product - yet more people involved. They actually take these questions and queries and have them answered in a research shop overnight in India. Has a really solid management team and should look to be a more serious player in for the institutional investors doing research.

GStock is a pretty interesting stock search engine that gives BUY and SELL ratings based upon simple trend analysis, which allows them to beat right on 2 out of 3 trades. Unfortunately, the average gain above market over the past 3 years was only 2%. It will be interesting to see how this company does.

Options-Research is another one of those "newsletter" beat the market trading sites. September '07 Results that only plays the options on a couple major ETFs, DIA and QQQQ, and some major public technology companies, AAPL, EBAY... It will be tough for them to keep their 2006 monthly avg of 73% returns.

Optionetics is a great company and they must have a contract with Yahoo Finance. Their Option Screening Tool is very helpful in finding the best priced option for a security you might be interested in playing based upon risk/reward profiles and odd probability that the option might take off

Redefining Luxury as Necessity

In economics, a luxury good is a good for which demand increases more than proportionally as income rises, contrast with inferior good and normal good. Luxury goods are said to have high income elasticity of demand: as people become more wealthy, they will buy more and more of the luxury good. This also means, however, that should there be a decline in income its demand will drop. It must be noted, though, that income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. That is to say, a luxury good may become a normal good or even an inferior good at different income levels, e.g. a wealthy person stops buying increasing numbers of luxury cars for his automobile collection to start collecting airplanes (at such an income level, the luxury car would become an inferior good).

My argument is not that this is true, not that these good should be avoided, but more people than thought of before should be living the life of luxury. My goal, through taking the ideas used to value a company, is to use discounted cash flow analysis to show the actual future value differences of regular vs. luxury goods that we see everyday. From the lady who invented the little black dress, "Luxury is extremely superfluous, but extremely necessary," observed that legendary trendsetter, Coco Chanel.

According to dictionaries, luxury is something that is not necessary for life but can make it more enjoyable or comfortable. Sumptuousness and extravagance are a couple of synonyms for luxury. Unfortunately/fortunately, these dictionaries are right and wrong. It not only makes life more enjoyable and comfortable, but for the lives we live in today's society, spending more makes sense.

Now, I am not promoting paying more than something is worth, but not settling for anything less than the best. Best mattress, best suit, best car, best life. If you do your necessary due diligence, luxury goods hold their value better and your enjoyability with the good is much higher (debatable).

I will try to do this exercise with a couple of examples; durable goods that can be found everyday that both have common and luxury substitutes. Some examples mentioned were clothing, automobiles, and mattresses. I would appreciate any thoughts you might have as well.

Stock Market Social Networks - Find the Next Warren Buffett

Recent start ups Stockalicious and RockYourStock are the next wave of investment tools that can be used by easily misled beginners all the way up to easily misled expert investors. These social communities could be great at offering investment advice without getting charged hefty fees. Also could be dangerous because of easy manipulation.

Stockalicious.com is "a clever site that helps you examine your investment habits by putting all of your stocks in one place. By looking at your trading habits on the site, you can see when you purchased stocks, whether you are trading too early, or if your portfolio holds up against the market, and even personal notes about why you make trades. If you think all of this info should be spread around to your buddies, you can spam your friends. On the other hand if you’d like it to remain private, you can embed your portfolio in your blog. All you have to do is register for free to get started on your portfolio."(K)

From Stockalicious you are able to watch how others are faring in the market and if you notice someone consistently making the right moves, you could copy his portfolio.

On the other hand, RockYourStock "is a funky cool, high-octane and constantly updated website that brings the investment world out from the grey towers of Wall Street and puts it into context for you, the everyday consumer. Each day we’ll blog on companies that you interact with all the time to bring to light ‘hidden gem’ investment opportunities."

It can make investing a little more fun. They have four featured portfolios on their site; the fruitbasket, bastard fund, granola fund, and icebucket. Description of the bastard fund: "The stocks chosen participate in activities or manufacture products that many consider sinful. We at Rock Your Stock are agnostics. We only care about the business. We’re not here to judge anything or anyone; except for the quality of investment."

Look to leverage long the stock picking social networks, because at least now you can do what everyone else is doing...