2008 03 06

I booked with China Airlines, expecting… not expecting much. Boy was I surprised. The service was fantastic. They even gave me slippers!

As usual, I got the kosher meal and the food was great. Katleta, omelet, noodles. It’s always fun having the staff check beforehand that I was the guy ordering the meal and having it arrive in a sealed box that only I can open. Almost like a spy movie.

On first, longest flight (to Taiwan), I sat next to a guy who ran an export company. He sent ships of goods from one country to another. He said that world grain supplies were down to two months from their usual three–possibly due to the impact of bio/alc energy. He talked a bit about his job and globalization, about how imports help drive down prices, and how our salary growth remains the same but electricity and gas keep rising. He said it was a relationship that helped both countries, providing jobs for people overseas and providing us with lower prices. While everyone is complaining about the imports, we do enjoy the cheaper goods. He also talked about genetic engineering, how while people fiercely oppose it, our breeders, albeit at a slower pace, have been doing it for years, and that while it has caused trouble, it has helped a lot of people as well. Interesting jobs people have. Imagine that, sending ships all over the world and negotiating with people in all sorts of countries. Beef from South America, feed from somewhere else. It was an interesting conversation because I was reading Education of a Speculator, the part where Niederhoffer was talking about relationships between wheat prices, volcanoes, and dust storms in China. Interesting how the world is so inner-connected.

The guy said I should visit Taipei. The food is delicious and the museums are filled with ancient treasures and there’s a lot of culture saved from the Cultural Revolution.

On the crossover, as we waited to board the next plane, some idiot started going off on the ticket lady. “Why the f- do you always make us wait in line? How can you treat people like this?” He felt proud to be standing up for the rights of us American travelers against the evil machine we were flying through. Except he didn’t do anything to any machine. Or for us. Or anything except have a power trip, scare a young lady trying to do her job, and embarrass us as an unwanted self-appointed representative of the passengers. Seeing what was going on, I (I hate to admit), stepped away from the confrontation. I wonder what the course of action would have been. Luckily, some of the older guys in line had more guts and did something.
“Shut up. Leave her alone.” Once one man said it, everyone else followed.
“You guys are like sheep. I’m standing up for you.”
“Speak for yourself. We’re just fine. If you don’t like the service at this airport, then don’t fly through here.”

Guess who my neighbor on the plane was? Our fearless defender against the translator/directions lady. He actually turned out to be a interesting guy. Both a complete opposite of the previous neighbor and in many ways just like him. He was in his forties, maybe older, although he looked my age. He owned a custom bike company in SF. He had a cool story and was quite a cool cat (had to be quite a story to make up for his earlier behavior huh?). I forget why he was going to Chiang Mai, I think for a vacation. He had a way of raising his voice when he got passionate about something, kind of like a man riding life, a buzz in his eyes, although I don’t think he was drunk at all. Maybe drunk on life. His opinions on trade, outsourcing, globalization were a bit different from the previous guy. He believed much of the outsourcing and international jobs were forms of exploitation. He told about how some plants would create so much pollution that they’d ruin the water supplies of the entire areas. It wasn’t just about pay. He said that before letting our corporations open a factory abroad, we had to make sure that it actually benefited the community there, improving their lives and at the very least not hurting their environments. Funny, how someone who was so rude to the lady at the airport cared so much about people abroad.

It’s interesting. I agree with both of them, although I’m no expert on econ or trade, but it doesn’t seem right that our companies can have oppressive measures and destroy our planet just because they operate in another country. At the same time I don’t see a problem with letting people in another place have a chance to work on products and services we use. Especially when the internet makes connections so easy. Why shouldn’t someone in the FRU be able to make more money for his programming skills, why shouldn’t someone in Bangalore provide excellent service at a call center? However, I do think our government should give some sort of protection to our own workers too. But at the same time, I don’t believe in protecting professions that are going away either (the destroying the machine style stuff). And at the same time, that job, as automatable or exportable as it may be, has a person behind it, a living breathing person, who has a family, most likely kids to support, and human dignity often connected to being a provider and supporter of himself and his family and in getting stuff done (hopefully). Although it’s easy to think, “Well go do something more useful,” it may not be that easy for someone who has worked hard for decades. I don’t know the perfect solution and I’m not into “ologies” but I feel that neither a “stop all trade/overseas plants” nor a “let the market take care of everything and keep the government away” offers a full solution.

On a side note, while waiting for the bathroom stall. I talked with a guy from Laos. He said I should go teach in his country. The people are super friendly, it’s beautiful, and the language is almost the same as Thai. That would be a fun trip.

We landed in an airport amid a light gray fog. Hot day but a gray fog. People said it burning rice fields.

You believe all swans are white. Each time you see a white swan, it’s just confirmation of your belief. People can see millions of white swans, but it only takes one black swan to prove everything wrong.

I first heard of this book on Talk of the Nation’s Interview with Taleb, it stayed in my mind throughout my adventures in Thailand, and upon my return I finally got my hands on a copy and fell in love with it.

Here are some of the topics covered (not a complete nor ordered list, nor exact quotes, just general highlights of parts I loved):

1. Mundanistan vs Extremistan: Take a 10,000 people to a stadium. No matter how fat one guy is, he’s not going to change the average weight by any noticeable amount. Same with height. Same with age. Now imagine you’re measuring net worth. A guy like Bill Gates will blow the average out of the stadium. Measures like height, weight, etc are from Mundanistan. Measures like net worth, people killed in a war or by a disease, the impact of a new invention etc, are from Extremistan. Averages and standard deviations and predictions can fail in Extremistan. For the most part…. we live in Extremistan… and we shouldn’t depend on Mundanistan prediction methods on things that can have huge impacts on our lives.

2. Silent Evidence: “These souls prayed to the gods and were saved.” “What about those who weren’t?” Most interesting professions, like writing or trading etc have huge cemeteries. When we look at the winning record of associates at a firm, or books sales, or even the stock picks of the latest hot fund, there’s a lot we don’t see. What about all the guys who are fired each year? What about all the authors who fail? What about all the companies that went bust and were replaced? Or the funds that were hot that no longer are? We often read books by successful CEOs listing the qualities they think made them get there (I’m particularly guilty), but we don’t see the thousands who have those same qualities who failed.

3. The Ludic Fallacy: Mistaking the map for the terrain. Best illustrated with the help of Fat Tony.

Thought experiment at a bar (this isn’t an exact quote, sounded much better in the book):
Taleb: I tossed a fair coin 99 times and got heads each time. What are my odds of heads on the next toss?
Dr. John (the actuary): 50/50.
Fat Tony: At least 99 to 1.
Dr. John: But why? The previous tosses have nothing to do with the next one.
Fat Tony: You’re either full of crap or a pure sucker to buy that fifty percent business. The coin’s gotta be loaded.

In other words: it’s more likely there’s something wrong with the assumption of fair play than a fair coin landing 99 times in a row on heads.

Further examples of this are in how we deal with probability. Most people think of probability as chances in dice and card games, but as one example points out: what were some of the biggest losses a casino had to deal with? A tiger attack on one of the Casino’s top performers, a pissed off contractor trying to dynamite the foundation columns, an employee filing papers that needed to be filed with IRS only in files in his own desk, and a kidnapping of the owner’s daughter. Think outside the box. There are many more things we don’t know than we know.

4. Induction: Don’t be the turkey!
Turkey wakes up every morning and gets fed and cared for by humans. It’s been true for 999 days. But on the 1000th day, there’s a very unpleasant surprise. Induction can be deadly.

5. Ties and Mice and Experts
Just because someone speaks with authority, has a suit on, and has a fancy position doesn’t mean you should trust him (or her). Next time you deal with a self-assured expert (political analyst, fancy academic, economist, etc) imagine dropping a mouse down his shirt and seeing his reaction. I was crying from laughter during the first detailed elaboration.

6. Survival Bias: Why didn’t the Plague kill more people? Because we’re still here. If it did, we wouldn’t be here asking. Casanova had his lucky star that he believed helped him back up. How could he bounce back so many times? Well, he might have, but thousands of other Casanova’s didn’t. You’re not hearing from them. Sitting next to a guy at a Casino, who just won some 1 to 100,000 prize. “It has to be destiny. I mean look at the chances.” Yeah, look at them, there were 999,999 others who failed. Don’t ask how could it be that you got here, but think of all the minor things that could have made you not be here. (Similar to 2. Silent evidence.. they’re all inter-related)

7. Butterflies and Chaos and Discoveries: They cleaned all the bird poop off the satellite, but the noise was still there. Turns out those noises were from the birth of the universe. They were just getting rid of bird crap. The guys that deduced those signals should exist had to read about the noise from the paper. Ditto for penicillin, another accident. Heck, ditto for Columbus and America. Big discoveries often happen when people are looking for something else. The weather simulator gave completely different results for the same input. A bug? No, it was from rounding some really small, super-tiny, unimportant number. The so-called butterfly causing a hurricane… two years later. But here’s the thing, this is not an invitation to analyze butterflies! The point is, in highly complex systems, minor measurements can completely change the results. The whole point is it’s extremely difficult to predict.

8. Diaries and Noise:
Instead of rebuilding memory and answers to suit events, keep a diary, with your predictions and analysis. Much more humbling. Interestingly, regarding news and info (and going well with Ferris’ low information diet): more information can hurt your performance. Take a fire hydrant and blur it. Now unblur it in a number of steps, say 20 for Group 1, and 10 (corresponding to each second unblur) of the previous group. If we stop at each common unblur and ask both groups if they recognize it, the group with just 10 steps would see it at an earlier step than the group with 20. More data, slower recognition. Ditto for investing, perhaps computers can run on nanosecond algorithms however, for people, this can create a lot of confusion, stress, and wasted effort. In addition to being blinded, we’re wired to make connections and see stories. They make memory doable, but the “because” isn’t a fact. Niederhoffer also stressed this in his books (Education of a Speculator, Practical Speculation) in regards to financial news headlines. Interestingly enough, he also avoids the news… except for the National Inquirer.

9. Anti-Platonicity: I whine about categories enough. The book does too.

10. More more and more:
These are just a few of the things covered in the book, others include fractals, a simple overview of black swan investing strategy (only minor but very interesting), surprising praise of army analysts, wonderful treatment of self-confident academics and professionals and high brow opera culture, anecdotes, scientific and philosophical references, different modes of reasoning, exposing oneself to opportunities, linguistic mistakes that cost us bigtime! All told in a down to earth, understandable, funny, very funny voice.

This should be required reading before entering college. It could help raise many interesting questions. The induction part, actually highlights a really interesting point in writing persuasive essays on standardized tests (my favorite subject to teach)… using single examples, the narrative, isn’t the logical/scientific way to prove stuff… although it’s very effective for its given purposes (getting into college, getting a higher score… or to get viewers for news-stories news headlines).

I actually didn’t read the book, I listened to it… twice. It’s the perfect journey book, on drives from SF to SJ, I sometimes ended up sitting in the car minutes after arriving to get the last morsel from the chapter. Some neat books that gave background to this read: Niederhoffer’s Education of a Speculator and Practical Speculation, Ariely’s Predictably Irrational, and Tim Ferriss’s The 4-Hour Workweek. I think the direct link between the interview and getting the books was probably from Daily Speculations. In any case, The Black Swan is a must read, a book that can change the way you see the world.

Two articles worth reading:
Blowing Up: How Nassim Taleb turned the inevitability of disaster into an investment strategy (2002)
Nassim Nicholas Taleb: the prophet of boom and doom (2008)

John Stone Fitness: johnstonefitness.com

I’ve changed the blog theme to the Zinmag Futura. However, I don’t need most of the flashy gizmos, and so I disabled them. But I love the thumbs and the rotating front page featured and slide/glide menu. The only issue I’ve had was with the thumbnails links not working correctly (discussion thread), but hopefully that gets cleaned up soon. Also, I just found out that Zinmag Redox had exactly the things I wanted without the extra features (for anyone that wants to save an hour or two in setting things up).

I added Sociable and Akismet, I love these two plugins. My amazon link plugin (which really speeds up getting the book pictures) doesn’t work with the latest version of wordpress. I also used the built-in tag cloud feature of wordpress. In the future I plan to add a photofeed and a connection to 43things.

I’ve also been cleaning up the categories. I don’t have it fully planned out, but the plan is to simplify and make them more natural. Most of the book posts will go into the book categories, financial stuff will go in its own category, job stuff in its own category rather than being split among three or four. I don’t know how relevant this categorization stuff really is since I don’t believe in categories (tags are a far better metaphor for describing the world) but nevertheless we all categorize things to help us make quick decisions (for better or worse) so for now I’ll play along. It’ll also help with the thumbnails (for posts which don’t have a specific thumb, adding category-based generics makes sense).

OK, time to go study. Have a great day.

I especially appreciate the sheets you can download from his website (fourhourworkweek.com) and high speed push toward efficiency and figuring out what you really want… ie. not a sum of money… but what you’d actually do with it. It was really surprising when I asked quite a few people what they would do if they had all the money and time they wanted that they really had no clue. They never thought beyond the money/time part. What Timothy Ferriss does is make you ask the right questions and take the necessary steps before it’s too late. Lifestyle design should be a required subject.

BLDRS Emerging Markets 50 ADR Index ETF (ADRE) follows the Bank of New York’s Emerging Markets ADR Index.

American Deposit Receipts (ADR) represent ownership in the shares of foreign companies trading on US markets. This is how many foreign company stocks trade on US exchanges. ADR’s enable US investors to buy non-US shares without without going international and without switching currencies. The Bank of New York is the biggest issuer of ADR’s.

Vanguard Emerging Markets ETF (VWO) (VIPERs) follows the MSCI Emerging Markets Index. Maybe it’s the investing style or the turnover rate (3% for ADRE vs. 26% for Vanguard!) or the countries covered, but ADRE beat VWO over the last couple years. Vanguard is definitely more diversified (866 stocks) vs. 50, yet offers the same low expense ratio (.3%).

It’s a tough choice, the safety of (VWO) 866 stocks vs. the low turnover of BLDRS. Between the two, I’m leaning more towards ADRE, just because I like to hold onto good finds. Maybe I’m wrong, still new to this. Feel free to comment.

My biggest question is whether to invest via mutual funds (index funds) or as a stock (ETF - exchage traded fund).

Taxes and commission fees are the greatest issues: index funds automatically reinvest dividends into the fund. Not sure if ETF’s do so. Other issue is taxes; does one have an advantage over the other? Not sure.

A few I’m looking at: JKL, JKF, JKI, EFV, ITF, VGSIX, and the DFA value group (like DTMIX)

Ideally I’m thinking of a split ratio of real estate, domestic value, and international value stocks. A bit aggressive? Maybe. I’d also like to put in a portion using the little blue book method as well. The two companies I chose 10 months ago, (fdg, and dlx), are up 50% so far. Running a few more sets over this month, to be sure.

Any answers/comments?

The part on glamor professions really hits a point. Thousands of people in lower positions competing for a very few spots. Those that make it, do very well, those are the ones seen, but most people don’t make it. If instead people went for a different goal, they could significantly increase their chances for success, or at the very least increase their standard of living while they try to achieve it. I also like how many events could be equally well or better “explained” by influences completely different than those that come to mind. Crime rate drops in a city with new police policies. Everyone cheers the mayor. Crime drops across the nation, regardless of policies. Was it because of the new policies? Was it due to some other event? Interesting question is how can we test these explanations.