It Burns! It Burns!

chartjunk » Blog Archive » Fox News, Giving it 193%

Wed, 25 Nov 2009 10:39:11 -0500

chartjunk » Blog Archive » Fox News, Giving it 193%

"One of my favorite stories is boy in Texas, when the teacher asked the class the following question...."

Sat, 14 Nov 2009 20:51:10 -0500

“One of my favorite stories is boy in Texas, when the teacher asked the class the following question. There are nine sheep in pen, and one jumps out, how many are left? Everyone got it right, and said eight are left. The boy said none are left. The teacher said you don’t understand arithmetic, and he said ‘no you don’t understand sheep’.”

- Reflections on Value Investing: 2008 Wesco Shareholder Meeting: Detailed Notes

CARDBOARD a cardboard animation! (via svervoor)

Wed, 04 Nov 2009 17:23:45 -0500

CARDBOARD a cardboard animation! (via svervoor)

"Wal-Mart, based in Bentonville, Ark., quietly put up about 15 caskets and dozens of urns on its Web..."

Thu, 29 Oct 2009 12:49:17 -0400

“Wal-Mart, based in Bentonville, Ark., quietly put up about 15 caskets and dozens of urns on its Web site last week.”

- Wal-Mart starts selling caskets, urns online - Forbes.com

The ultimate health care hedge: buy Walmart.

The Becker-Posner Blog: Pay Controls Once Again-Becker

Wed, 28 Oct 2009 11:21:39 -0400

The Becker-Posner Blog: Pay Controls Once Again-Becker:

A voice of reason.

A Very Renewable Energy Source - Freakonomics Blog - NYTimes.com

Mon, 26 Oct 2009 11:44:54 -0400

A Very Renewable Energy Source - Freakonomics Blog - NYTimes.com:

I joked that in a post apocalyptic world, you’d find me raising rabbits and growing chia for sustenance. Looks like the Swedes are catching on, though not exactly in the manner I envisioned.

Factual.com

Sun, 25 Oct 2009 23:21:20 -0400

Factual.com:

Find yourself some data!

Le Grand Content (via enlarge)

Sat, 24 Oct 2009 23:09:05 -0400

Le Grand Content (via enlarge)

America's Smartest Cities—From First to Worst - The Daily Beast

Thu, 22 Oct 2009 11:24:20 -0400

America's Smartest Cities—From First to Worst - The Daily Beast :

My fiancee and I have been brainstorming about where we might want to settle down, and seeing as she’s in academia and that I want to perform experiments on our kids, we thought we’d look to see where the most academically oriented regions are.

The Daily Beast says that it’s the Raleigh-Durham-Chapel Hill area, but I would have guessed Cambridge/Boston (like Paul Graham and Philip Greenspun do).

This is their somewhat quirky methodology. It would be nice if they published the component scores so that you could downweight things you don’t value.

CEO Compensation Contest Winner | GOOD Ok, I have to point...

Tue, 20 Oct 2009 23:38:08 -0400

CEO Compensation Contest Winner | GOOD

Ok, I have to point something out about this CEO compensation nonsense. Of the folks I’ve read who complain about compensation, not one has yet to propose a sane framework from which to derive appropriate salaries.

Let’s take Oracle as an example. This company makes $5 billion in revenue per year. If the sheer strength of Larry Ellison’s CEO abilities produces an extra, say, 3 percent of revenue, then he is worth $150 million per year more than the next guy. Given he’s paid a bit more than half that amount, maybe his inflated compensation is appropriate?

The real issue at hand here is not what we pay the CEOs. We always want to be able to attract CEOs who can provide more value than they cost. The real issue is that we want CEO interest to be aligned with the long term interest of the shareholders.

One way of doing this is to limit the CEO’s cash compensation to a number that supports a reasonably good lifestyle, say 10 times the median household income (roughly half a million). The rest of compensation should be given via stock (not stock options, mind you — those have problems of their own) with time restrictions attached, so the CEO can not dump it in the short term.

Warren Buffett, in fact, self imposes these sort of restrictions. His yearly salary is set around $100,000, and the rest of his compensation is in stock, which he has committed to never selling (he recently pledged it to charity).

We ideally want compensation structures to tie CEO interest with investor interest.

"The schools pledged sums to private equity that far exceeded their investment targets. Although..."

Thu, 15 Oct 2009 14:25:09 -0400

“The schools pledged sums to private equity that far exceeded their investment targets. Although Virginia set a target of investing 20 percent of its endowment in private equity, it committed 35 percent, or $1.8 billion. The rationale was that the actual investment wouldn’t substantially exceed 20 percent because as the outside managers gradually drew down the money, the university’s coffers would be replenished by returns from IPOs of companies that the funds had bought. This approach, says an endowment insider, “is precisely why we are where we are today—why UVA is crunched.””

- Cash Me If You Can - Executives - Portfolio.com

Does this sound familiar?

This blog is my frustration vent

Mon, 12 Oct 2009 11:41:00 -0400

The tech support at some companies just boggles my mind. There needs to be a clearer channel to send truly technical complaints to developers, and not get floated around in the pre-fabricated script limbo.

The newest company on my shitlist is American Express. For quite some time now, I’ve been receiving email notifications for statements, alerts, and special deals. Several times now, I’ve logged into their system (after being prompted by an email) to get an alert saying “our last email to you bounced.”

First, they have a message center. If the email bounced, put it into the message center, so I can at least see what it was. But you have to know the trick on how to get to the message center — click on “Update contact information”, and then there’s a “View Message Center” link. It’s unfortunate that they only hired Whitney Hess for a portion of their site, because the rest of it really sucks.

Second, I thought perhaps there was an issue with my mail server, which I personally run. No complaints from anybody else, though. But I gave them the benefit of the doubt, and switched my contact email to Gmail. Lo and behold, I still got bounced email alerts, despite continuing to receive a steady stream of emails from Amex.

So, time to head to technical support. I explained the situation and how I’d used both my personal email server and Gmail, so I doubted that it was an issue on my end. Their response was the unimaginative “there may have been a temporary disruption in email service, a problem with your ISP, or your inbox was full.” I repeated my email: my inbox was not full, I run my own email service, I used Gmail with the same results.

And the response?

“I understand your concern regarding the alerts you receive from us and would like to inform you that you may add the two e-mail addresses mentioned below to your contacts or personal address book to ensure you receive all of your important notifications from American Express:

AmericanExpress@email.AmericanExpress.com
AmericanExpress@email2.AmericanExpress.com”

How exactly does this help? My guess is that this fellow (a different customer service rep than the first guy who responded) is afraid that emails are being flagged as spam. Nice try, buddy, but these are bounces.

At any rate, as long as Amex doesn’t decide to stop sending me email because it thinks some are bouncing, it doesn’t really matter.

How real estate investment destroys your soul

Thu, 08 Oct 2009 16:47:00 -0400

We’re closing on a house within the next couple of weeks. I’ve been resisting writing about this until after the deal is sealed, but I feel like I should get words down while it’s fresh in my mind.

This house is for an investment. We don’t intend to live in it for more than a fraction of the year, and I’m looking at it primarily as a substitute for the “safe” long term part of my portfolio — depreciation effects and net rental income make the house look like a hybrid between regular and zero coupon long term bonds that happen to be inflation protected in the long run.

The price for an investment of this sort is the most important part of the deal. It determines if and by how much you make a profit more than any other factor. Your gross rental income comes from the house’s characteristics, but your long term gain and the bulk of ongoing expenses (taxes and mortgage interest) are a function of the price.

So, like most investments, you have to get the lowest price possible.

But that’s hard with this sort of investment. With stocks, it’s easy. You figure out how much the stock is worth, and if it’s publicly trading at a lower number, you buy a slice of the company.

With a house, you can make a lower offer than the public asking number, and maybe they’ll take it. If it’s a very low offer, you feel bad, because the other party is really getting screwed on the deal. If they’re under strenuous circumstances, you feel even worse, because you’re taking advantage of the timing.

The stoic investor will say, “well it’s not my fault that they bought the price at a high.” And I thought I would be able to say that — but apparently my heart is quite squishy.

If you, say, bought a large piece of equity in a local bookstore, you become partners with the previous owners and/or managers. You have a relationship going forward, and so you have an incentive to purchase at a fair price, so as not to poison the partnership. That’s really the key — it’s a partnership.

But with the house, you sever any ongoing relationship with the previous owners. You have no incentive to get the house at a fair price. You have every incentive to get the house at a less than fair price.

This is why buying investment real estate destroys your soul. I’m glad for this experience, but I’d hesitate to do it again.

(Note, in this case, I think we are paying a fair price for the house and that I’m not totally taking advantage of the current owner, but that’s because we became attached to the house and upped our initial bid. If we had continued according to plan, there’s a good chance we would have taken advantage of somebody’s desperation and really gotten a house cheap.)

xkcd - A Webcomic - RPS

Mon, 05 Oct 2009 09:38:47 -0400

xkcd - A Webcomic - RPS

Intent and effect

Thu, 01 Oct 2009 13:45:00 -0400

When I was young, I asked my dad what the difference is between Democrats and Republicans (I think this was around when Bill Clinton was running for first term), and his response was “Democrats like to spend, spend, spend, and Republicans like to say, wait a minute, let’s think about this.” I don’t know if he was joking or not!

I’ve formed my own opinions about Democrats versus Republicans, despite my reservations about broadly generalizing “us vs. them” lines. Well, now I’ve got my own pithy way of describing the difference: Republican is to Democrat as intent is to result.

To avoid getting in trouble, I should qualify that this has more to do with Republicans and Democrats today than perhaps historically.

Ideally, I would like to live in a Republican world, one dominated by rational, free market, libertarian thinkers. In the real world, though, not only does libertarianism not exist, but applying it results in disastrously degenerative results.

For instance, an unregulated market gave us separate treatment for blacks and whites. There is no rational reason why a southern store owner might deny a black patron, and yet it happened.

Cooperatives are another example, especially prominent now that Republicans (and Democrats) are vying for them as part of health care reform. I’m enamored with the idea of cooperatives, and my fiancee can attest to the period of my life when I was completely obsessed with starting one for every imaginable business idea.

Conceptually, a cooperative is a business that is controlled by customers. Credit unions are a form of a cooperative, as well as the local food co-op, though they have very different rules about participation and control. The assumption is that co-ops are not-for-profit, because earnings are usually passed back to the customers. This is a reasonable assumption, but it does not necessarily have to be true.

The intent is that control of the cooperative is in the hands of the customers. They vote for who is actually put into a position of power, typically a board of directors.

The effect is that most people don’t exercise their rights. In the Planet Money health co-op episode, they look at one of the two existing health co-ops in the country, and find that about half a percent of the members actually vote.

Consider too one of the most successful business cooperatives in existence: REI. Nominations for the board must be approved by the current board (a committee, actually). An independent candidate must receive support from 50% of the members to be considered for nomination (and then can be nixed by the committee). If less than 1% typically vote, what percent would care enough to nominate someone independent of the board? This is effectively a non-cooperative. (Despite this, I have no beef with how REI is run, though I am not a frequent customer.)

Another point brought up by Planet Money is that the two health cooperatives are just as expensive as regular for-profit insurance companies, and that provider costs are mostly a function of volume. Given the existing evidence, it seems to me that a health cooperative as an alternative to a public option is an overwhelmingly misunderstood idea. While the intent of giving control to the consumer is desirable, empirical evidence seems to suggest that the effect will not be what we’d like to accomplish at all.

Examples like this are why I’m pretty firmly in the Democratic camp for the time being, despite some truly brain dead moves such as Clash For Clunkers, and a disappointing messiah complex people have about Obama.

Invisible Dog Walkers Invade Cobble Hill - Gothamist

Tue, 29 Sep 2009 12:37:03 -0400

Invisible Dog Walkers Invade Cobble Hill - Gothamist:

They beat me to the punch!

My fiancee and I have been going to the nearby park after 9pm to watch dogs run around. That’s when they’re allowed off leash. I joked that we should bring an invisible dog leash and pretend to let him loose.

Insurance premium price fixing.

Wed, 23 Sep 2009 20:27:00 -0400

I emailed this to Planet Money:

I’ve heard the argument that the heyday of the airline industry came in part because the government fixed ticket prices. As a result, airlines had nothing else to do but compete based on quality. Airline deregulation did away with all of that, and the general consensus is that this was a good thing — tickets became more affordable for all, airlines became masters at optimizing costs, routes, and providing variety.

That said, I’m intrigued with the idea of government fixing prices to force insurance companies to compete on quality. I’m free market enough to want insurance companies to compete, so I figure, why not a hybrid?

What if the government said something like “all insurance companies must offer a plan at $X/month that anybody can take” (where X is set low enough to expect most of the population to be able to afford it, perhaps a fixed % of CPI). It’s up to the insurance companies to say what exactly the plan covers.

It very well might be the case that no insurance company offers serious plans. But I suspect that the government could come up with *some* X that would be reasonably profitable for insurance companies. The government was going to do that work anyway in the form of a public option. The difference here is that the we let the free market dictate the actual benefits.

There’s a potential feedback loop here — if an insurance company offers a plan at X better than anybody else, more people will sign up for it, which should theoretically bring down the liability variance, making the plan more profitable, etc…

Is there an example, besides the airline industry, of price fixing leading to higher quality?

Long Bets - On the Record: Bets

Wed, 23 Sep 2009 19:45:34 -0400

Long Bets - On the Record: Bets

What is the cost of insuring your investments?

Wed, 23 Sep 2009 18:10:00 -0400

I had a conversation with a Schwab representative about what should happen to my investments if Schwab were to go under. I figured the answer would be one of two possibilities:

You lose everything.
You keep everything.

The answer is neither. According to this rep, the government insures up to $500k of your investments.

To make the discussion more concrete — imagine that you’ve got $1,000,000 (what an imagination!), and you put it all into a CD (not very imaginative). This is basically the safest investment you could possibly make short of stashing cash underneath your mattress.

If Schwab goes out of business, the government will insure that you still have $500,000. It’s unclear to me if they insure a $500k CD, or if they just hand you $500k in cash. Anyway, that’s unimportant.

My question is: what is the cost of insuring the rest of the $500k? In other words, how do I gain if Schwab craters?

One solution is to buy put options. If Schwab stock drops to near zero, you want to be able to sell it to someone at a higher price and buy it at the near zero price.

As of this writing, the last put option at a strike price of $7.50 expiring Jan 21, 2011 (let’s call it 1 year from now) sold for 40 cents. If you wanted to insure $500k, you’d have to buy about 667 of these contracts. Assuming that you’d be able to find counter parties for all those shares, this would cost you about $266.40, which is less than 0.02 percent of your portfolio per year. Or, roughly equivalent to Vanguard fees. Not bad.

Then again, I might be doing my math wrong. I’m not terribly familiar with options.

This is, for all practical purposes, a theoretical exercise. If Schwab were to crater, I fully expect that they would sell off their deposits to another bank. Schwab is also known to be a conservative and well capitalized bank.

But, if you are paranoid enough to get the options… make sure you buy them through a different brokerage.

Wii Wii

Wed, 23 Sep 2009 11:33:13 -0400

I want to write a Wii game where your mii is playing a Wii.