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There were a few articles recently in the Wall Street Journal and the New York Times about the new face of Philantropy: in an age of global information, new philantrophists are now finding it hard to justify giving money to the arts (such as Opera, or Ballet) where there are so many more important initiatives that need funding (such as poverty, global warming, and disease).
Similarly, when contemplating the books of the past year, I find it difficult to rank the Fiction highly when compared to non-fiction. How could one compare even the most well-written piece of fiction to books that teach you how to manage assets, change your mind about the causes of poverty, or unveil why the politics of the country is the way it is? Kelly Link and Karen Joy Fowler when they visited this year at Google said that the biggest challenge of a fiction author is to be a more compelling read than the latest non-fiction, in an increasingly science-fictional world where the web by itself would serve up article after article of interesting stories about MIT students making money on blackjack, or fascinating economic commentary from Berkeley professors.
Having said that, I'd feel like I am chickening out if I didn't make fast and hard decisions, so here they are.
The book of the year is Joseph Stiglitz's Making Globalization Work. Scarlet will tell you about the arguments we've had over the years about globalization. For me, there was never a doubt that free trade was a universal good. The mathematics of Comparative Advantage was undenial, and perhaps I was even a bit too smug about understanding it. Stiglitz changed my mind about all that. The brilliance of a man who not only understood the theory, but also understood the assumptions that don't apply in the real world behind it, coupled with his experience at the world bank makes this book easily the most important book of the year, and a rare book in that it will change your mind about what important problems are most critical to tackle. It even seemed to open up the minds of a few rabid libertarians at my workplace, which I think is a first. Libertarians seem to me to be no different than fundamentalist devotees of middle-eastern religions (of which Islam is only one) in that their minds are already made up and their attitude is, "don't confuse me with facts!" Well, this book has a lot of facts, all put together well, and very much worth reading.
A close runner up was The Way To Win, an expose about our modern political system, which I find interesting. I had an argument 13 years ago with Reed Hastings (CEO of Netflix) that I felt modern elections were too much about character and not enough about issues. After 8 years of Bush politics, I feel vindicated in that assessment. A book explaining how all the dirty and not-so-dirty tricks that go into running for the presidency (an important topic, especially in the upcoming years, which will determine whether or not we will ignore global warming or start to do something about it) is definitely something worth reading.
The best fiction I read this year was a toss up between Iain Bank's excellent The Algebraist, or Lois Bujold's The Curse of Chalion. I find myself tipped towards Bujold's book for many of the reasons why she's won so many Hugo awards: she's got a lovely flowing prose style that's extremely easy to read and drags you along the story. When she doesn't have a good story to tell, it feels a lot like drinking a lot of empty calories, but in this case it's a great story and you feel like you got a lot out of it. I also must say the Neil Gaiman in Anansi Boys had the first non-graphic novel of his that I could read all the way through and find it enjoyable.
Even though he didn't make any of the best books of the year, Charles Stross was a great find for me this year. This versatile writer hasn't found any fiction that he can't write. The style is quite kinetic and can sometimes be a chore to read, but it never fails to entertain.
Review: Veronica Mars Season 2
Last year's viewing of Veronica Mars Season 1 left Lisa & I blown away by how smart, how intelligently written, and well constructed the TV series was. So when the local library had a copy sitting around we grabbed it.
Unlike last year's DVDs, this year's DVDs had extras like deleted scenes, director's commentaries, and other goodies. The in-box presentation is also unique and holds the DVD more firmly.
This season's story arc revolves around an explosion that kills several of Veronica's schoolmates. As a season arc, it's done very well, with clues scattered around that in retrospect points to who did and why, but the ending manages to be a surprise. The cast changes slightly, with a few additions that I thought was interesting, and also brings back some unresolved stories from last season's plot.
Season Two doesn't have any really obvious plot holes in most of its stories, though a few sub-plots have me wondering if the characters live in the same world as I do. For instance a huge subplot revolves around Veronica Mar's wishes to attend Stanford University, which is apparently gated by her ability to win a scholarship to pay her way. It's as though financial aid doesn't exist in this universe. Stanford, like many other schools, awards financial aid based on need, not academics, so it's doubtful that an acceptance for Veronica would not have left her at least some way to pay for it.
Veronica is slightly less perfect this season, though again, one wonders how she manages to get nearly straight As, and still do everything she does --- there can't be that many hours in the day, even for someone who apparently does not sleep, as she does.
The season ends with a hook for the next season, and I'll look forward to it. Recommended.
Labels: reviews, tv
Gapminder's Video on Global Poverty
While debating with Scarlet over on her blog about poverty and what to do about it, I remembered the Gapminder presentation at Google, which was an outstanding and incredibly illuminating lecture on global poverty, global inequality, and what has been done to lift people out of poverty.
It also highlights how poorly the USA does in metrics compared to other developing countries. We have some of the worst infant mortality rates, and among the lowest life expectancies, despite our immense wealth. Most of that, naturally, can be attributed to the fact that we are the only major developing country not to have a universal, single payer healthcare system. So while we spend 16.75% of our GDP on healthcare (according to today's Wall Street Journal article), we have worse outcomes than any other developed country.
Is it surprising, then, that Americans are beginning to turn against trade? The world's most open economy has the least safety net for its citizens. If you're displaced by globalization or technology, you lose your health insurance at exactly the time when you're most likely to need it. All the middle class webmasters, accountants, and soon, radiologists who are displaced by outsourcing will start feeling that pinch soon, and unlike poorer unskilled workers these are people who will actually vote. Things will change, and my hope is that they will change sooner rather than later.
Review: MacTech magazine
I got this magazine because MacTech was running a special offer on their magazine. Since I'd just acquired a MacMini, I thought that this would be interesting --- maybe I'd learn a little bit. To my horror, MacTech is an absolutely horrible magazine with no redeeming features whatsoever for technical people.
Here's an example from November 2006: A whole article on Virtual Computing with Parallels Desktop. For any other technical journal, this would be an article about virtualization technology, how Intel's new instructions make software like Parallels possible, easier to write, or run faster. If you guessed that about this article, you would be wrong. This article steps you through how to create a virtual machine, in a dialog-box by dialog-box expose. If you'd never seen a computer before you might need this sort of exposition, but for a technical person? The article is a joke!
The December issue featured an article about vi! This would be like Microsoft Systems Journal having an article about TextEdit and how to use it.
In case it isn't obvious: MacTech is a waste of time, a waste of money, and you are far better reading a for dummies book or any of the classics in Computer Science instead.
Review: The Way to Win
While I'm an economics and public policy junkie, I am not a political junkie, and don't enjoy politics, especially not modern politics. Nevetheless, as I've complained before, all the best public policy you have at your disposal falls apart if you can't win the election, so reading this book was my way of educating myself as to how successful politicians win elections, and what does it take to be one.
This book covers Bill Clinton's elections, Karl Rove's two successful campaigns for Bush, as well as Hilary Clinton's rehabilitation of her public image. It identifies the peculiar brand of modern politics, as epitomized by Matt Drudge, as the Freak Show, which emphasizes partisanism and anything goes, which drives the media cycle, since the Old Media has no choice but to follow the New.
Sprinkled all throughout is various bits of advice to future politicians as to what to do and how to go about doing it. Surprisingly enough, the authors have plenty of emphasis about a mastery of policies:
Truly knowing your stuff allows a candidate to avoid awkward mistakes, but that is not the most important advantage. When Clinton was preparing for a debate or a major news conference, his staff did not have to waste time testing him on substantive answers. The preparation instead was devoted to figuring out how best to present the correct response... This is a luxury not enjoyed by most campaigns, who know that they are always one wrong answer.
The corresponding Bush campaign tactic was to ignore any policy questions they did not care about by answering with generalities but then respond substantively about issues they did care about. As the authors point out, it's quite unlikely that future politicians will be as willing or capable of mastering the policy side of the campaign as Clinton was.
By far the best part of the book has to do with its analysis of Karl Rove. While he's been much demonized by many, this book will leave you with a new found respect for how smart and hard working Rove is. Not only was he the political strategist, he was also the policy analyst, the chief of information technology, and the marketing coordinator. He is the equivalent of a master architect who doesn't hesistate to dive down and write assembly code to optimize an inner loop. I suspect that someone that smart doesn't come along very often, and the fact that he's on the Republican camp means that future Democratic candidates are going to have a really tough time.
The book does point out a few things that are depressing for a staunch progressive:
The inherent nature of freak show politics is more beneficial to Republican candidates than it is for Democratic candidates
Maintaining your Image is everything. This is going to make future presidential campaigns even more vicious than ever.
All future candidates are likely to opt out of the federal financing system, ensuring that wealthy people will have a lot more say about politics than normal people.
This book also covers a lot of the failures the Gore and Kerry campaigns had. When lined up against Rove, it was obvious that these were amateurs playing against a master of the game.
Finally, there's an analysis of Hilary Clinton as a potential future presidential candidate, covering her senatorial elections which have demonstrated her ability as a politician and her mastery of freak show politics.
All in all, I learnt a lot in this book. It seems that while Abraham Lincoln was right in that one cannot fool all of the people all of the time, fooling all of the people just twice (for two election cycles) is all that's necessary to squander a budget surplus, involve the country in an extremely bad war with no good outcomes, while at the same time eliminating traditional political freedoms. I can only hope that the American public has had enough bad policy to step away from freak show politics some time in the future. Not that I'm betting on such an outcome any time soon!
In any case, this book is highly recommended, especially if you don't watch TV, don't read political blogs, and in general is always surprised by how the other 50% of the country always votes against you.
For those readers who think she cannot win, get over your delusion.
If Hilary Clinton chooses to run for president in 2008, she can win. That is not the same as saying she will win, or even that she is favored to win. But if she decides to run, she will be a formidable candidate, with significant advantages over every other plausible Democratic candidate...
New Wheels for the Fuji
I'd been riding the American Classic 350 wheels that came with my Fuji Team SL over the last year or so. As wheels go, they work. But they came out of true quickly, and the spokes are so thin that when I try to true them I'll get the wheel true in the truing stand, stress relieve, and they'll pop right back to where they were. And then there are all these stories about rim failures and bearing failures. I'm unconcerned about bearing failures --- you can almost always limp home about those, but the stories about rims breaking loose because they are so thin worry me on my descents.
So I ended up building a pair of new wheels. Front was a Campagnolo Chorus front hub with 36 WS DB15 spokes and a Velocity Aerohead rim (silver), and rear was a Shimano DuraAce hub with 36 WS DB15 spokes and a Velocity Aerohead OC rim. To my chagrin, the front wheel despite my extreme lubrication of the spoke threads had a few nipples seize up during the wheel build, so I did not tighten up the rim as tight as I normally would have. I again overlubricated the rear spoke threads, and the rear wheel came together perfectly.
The front Campagnolo Chorus hub was bought because it was (1) cheaper than the equivalent DuraAce front, and (2) it advertised a very nice, easy adjust cup and cone bearing setup that only needed 2 5mm allen wrenches to take apart and a 2.5mm allen wrench to adjust. Sure enough these were amazing. I could have overhauled this hub even without instructions. While they're not quite mainteneance free, I have no concerns recommending these to people who want an easy to service, traditional bearing hubs. And yes, the hub does roll extremely smoothly.
The rear Shimano DuraAce hub had a traditional cup and cone plus locknut system which required buying 2 14mm cone wrenches. I had a former mechanic at work show me how to adjust them, and they definitely are a major pain. Since you do have to take apart traditional bearing hubs every 3000 miles (which is about 15 weeks of riding for me), this is definitely a hassle. I definitely think that this is one of those things that's worth paying someone else to deal with. Thumbs down for the Shimano. Matt saw us adjusting the bearings and he said, "I'm definitely feeling very Phil Woodish." To make things worse after you ride on them a bit, the labyrinth seals on the hub weeps, leaking grease. This isn't a big deal on the road, but off-pavement it attracts a lot of dirt and you have no easy way of cleaning it off without risking contamination. Needless to say, it looks like bike cleaning is something I might have to do more frequently now.
On the road, the new wheels are just a little (about 200g) heavier than the old ones. This translates to slower acceleration, and just a little bit more honking and standing up on climbs than with the 350s. The wheels do roll along very nicely, and the DuraAce cassette hub is definitely quiet. Because these wheels are quite a bit stronger (and definitely feel more solid!), I take corners a little bit more aggressively on them and feel more confident when riding them on and off road. I'm glad I spent my money, but I definitely understand why American Classic does have a market for those 350s. Those 200g on each wheel do make a difference.
Review: The Long Tail
I picked up this book when Chris Anderson visited Google quite a while back, and only got around to reading it now. It's a good book, with the topic well explored and easily understood, but perhaps I've spent too much time exploring niche distributions, but the book seems kinda banal. The conclusions seem awfully easy to come by once you see the data. It seems to me that rather than write words to accompany the data, the entire book could have been compressed into about a 30-page technical report, with well-designed graphs and just a bit of commentary.
Ultimately, this book reads too much like a Wired article stretched out to fill 200 pages. Which of course, it is.
Hit-driven economics... is a creation of an age in which there just wasn't enough room to carry everything for everybody: not enough shelf space for all the CDs, DVDs, and video games produced; not enough screens to show all the available movies...; and nowhere enough hours in the day to squeeze everything through any of these slots.
This is the world of scarcity. Now, with online distribution and retail, we are entering a world of abundance. The differences are profound.
Review: Rainbow's End, by Vernor Vinge
After winning last year's best fiction, I looked forward to a repeat performance in Vinge's latest novel.
Rainbow's End follows the story of Robert Gu, a poet who is pulled back from the ravages of Alzheimer's only to discover his talent with words gone, replaced by a passion for engineering. If that was the main plot of the book, it would innovative and a departure for him, but of course, that's not it. The primary plot revolves around YGBM (You-Gotta-Believe-Me) technology: an infection and a trigger so subtle that people don't even know that their behavior's being manipulated.
The technology in the book isn't unbelievable, but unfortunately there are still a few plot holes big enough to drive a truck through. For instance, one plot point revolves around a corporation's attempt to scan books by putting them through a high speed shredder. Given that non-destructive scanning methods exist, it seems that this sort of technology would get the cold shoulder from University libraries, so my assumption is that Vernor Vinge didn't get along with the librarian at UCSD.
There's a little attempt to put in some character development in the novel, but nevetheless, I wouldn't read this book for any of that. The vision of technologies is interesting, but about halfway through the book after you've gotten sated, and you'll wish for the conclusion to happen quickly. It's exciting enough for a movie, but perhaps nothing could live up to the build up that had leads to it.
Recommended, but not his best work. Be warned.
The pillars shifted and the library... walked. It was not as spectacular as fake imagery could be, but Huynh was seeing it with his naked eyes. In halting cadence, first one fifty-foot pillar and then another rose visibly from the ground, moved several yeards in the direction of the Greater Scooch-a-mout, and descended with the sound of rock penetrating rock. The rest of the building shifted with them, twisting on the utility core that was the library's central axis.
Rotadent Review
Just on a review tear lately =)
Over the years, I've used many automated toothbrushes...it all started when the first of my 3 root canals told me that my dental hygiene was really lacking and I really should do something about it. So I've used the Oral-B, the SonicCare, and now, the Rotadent. The Rotadent was recommended to me by my dentist, and I cannot say if it is because they make a lot of money selling the brush heads (they claim they make no money from the brushes themselves, and I'm inclined to believe them), or if it is because it genuinely cleans better than the other power brushes out there. As my sonicare was getting long in the tooth, and I wanted to replace it with something else anyway, I decided to try the Rotadent. Oh yes, I had also gotten orthodontics at this point, and the Rotadent came with brush tips that catered specifically to that.
The rotadent is basically a rotary toothbrush. It doesn't do anything spectacular that other automated rotary toothbrushes like the Oral-B Triumph does, but there is one nice thing about it. It comes with a few different brush heads, 4 of them to be exact. 2 of them are your normal flat head ones, and two of them comes with an elongated tip. It is the brush heads with the tips that kinda made me really want to try them out.
My braces are the normal ones you see in the pictures. Wires with brackets glued onto the teeth...The elongated tips allows me to get underneath the wires, or between the teeth, or point it straight down the gum...and it does feel cleaner. The dentist told me that using the elongated tip is almost like flossing, and I can believe it as it does get to spots a normal toothbrush can never reach.
The bad side of the Rotadent? Its expensive. The unit itself is cheap, 99 dollars and it comes with 4 tips. The tips themselves? 20 bucks each from the dentist. That's why I say I can believe my dentist when she told me she makes no money from the unit. They make it all up on the tips! =) Even online shopping can only get it down to 15 bucks a pop. The same price that pro-dentec, the manufacturers (or distributors) of the Rotadent sells them for.
So I've been using it for a year, and inevitably, it broke. It started to take forever to charge, wouldn't hold a charge (the brushing action would feel slow), and took forever to start up (I believe the record to start up once was over 30 minutes)
Called the support #, went through really basic troubleshooting (its a toothbrush! what else is there to troubleshoot when I tell you it doesn't turn on?). The lady on the line, Rhonda, was really pleasant though, and sent me a replacement power switch. The power switch apparently is just a magnet that flips something on the other side of the brush so that power starts coursing through the handle, spinning the brush tip. It took 7 days for the power switch to arrive, I gave it a chance, switching switches, and still no-go. Another 30 minutes on the phone with Rhonda, and she is sending me a new handle and a/c charger.
Say yay for another positive story of customer service!
Supposedly, Pro-Dentec warranties the brush for the lifetime of it, and I'll see in another year's time if they are serious about it.
One last thing, the only big minus I can see about this toothbrush is that the charging element is exposed. Instead of a conductive base like all other toothbrushes, it is simply a plug that goes into the underneath of the brush...so the element that gets charged is exposed. I haven't died or got shocked by it yet, and I'm a shower-brusher....and I'm sure its 50% of the reason why the brush died faster, but for crying out loud. Its a tooth brush. Its meant to get wet, either in your mouth, or when you're washing it.
So I don't feel too bad about getting a new brush head.
All in all, I can recommend this without too much hesitation. Its generally cheaper than a soniccare or Oral-B when you first buy it, but the tips will kill you. Other brands sell 2 tips for the same price Pro-Dentec sells one of theirs for. So you have to make that determination yourself.
Posted by Sy at 4:54 PM 17 comments Links to this post
Nike+Ipod Review
So I bought this about 5 weeks ago. I have an iPod Nano, so I figure what the heck. Its' going for 25 bucks at amazon.com, at the worst it'll just be something I ebay for half the price...
Well, after 6 weeks, and 110 miles later, I can say, its great.
My first few runs were a bit wonky with it, so I figure I should calibrate it. I did about 1 mile on the treadmill at 6.8mph and then walked for a quarter mile at 3.5 and the next few runs I did with it was just perfect. My local loop of 2.35 miles came up relatively accurate (sometimes it reads 2.2 sometimes it reads 2.5), and if I average it, it usually is more or less accurate. Like any other pedometer that does not use a GPS, it cannot give you 100% accuracy, but then to get 100% accuracy, you really want a unit that tracks altitude changes too (an altitude change of as little of 100 feet per mile can be significant over longer distances).
The use of it is simple as is demonstrated by the nike+ website (link in title). Plug it in, select the "Nike+ iPod" menu item, slip the sensor underneath your shoe, select a workout, and away you go. You can select from "Basic" which just tracks your distance, and time, or go by "time", "distance", "calories". For the last option, you'll have to input your weight and height, but I can't see why anybody wouldn't do it. Oh yes, select a playlist too, or have it shuffle.
Then you go run. If you have it calibrated correctly and your sensor is in a good position, your iPod should start receiving information from the foot sensor and displaying it on your iPod. You can get some rubbish times at times, but generally it is fairly accurate. Don't use it to measure distances as you should know the distances you are running, but it should give you a good idea of what your pace is.
When you press the center button, a voice will tell you how far you've run, what your current pace is, and how long you've run. Press & hold the center button and your "powersong" comes up...its simply a song that you decide beforehand to give you extra motivation, if that type of thing works for you. =)
At the end of the run, the voice will give you a summary of your workout, plus calories burnt if you have input your weight/height, and if you've reached certain milestones, a congratulatory message from Lance Armstrong and some other lady will be given to you.
Note that you do not need to have an Nike+ shoe, you can buy a Marware Nike+ sensor suit,
and it should work just as well as if you had an Nike+ shoe. For my money, I have just been slipping the sensor underneath the shoe and calibrating it, and that works fine for me. I have purchased the Marware Nike+ sensor suit though, and will be reviewing that when I receive it.
Guu vs PowerGel vs HammerGel
So, one side effect there is of running and biking a lot is that you eat a lot. While you run or while you bike....Its been about 6 months since I began my training regime and I have eaten a lot of gels, but primarily I have experience with the gels in the title (mostly because I was given a lot of them, or they were free, or whatever).
Most of them share the same characteristics, easy to swallow, easy to open container, requires a bit of pushing to get the last bits out of them...nutritionally, they're all more or less the same:
PowerGel (41g serving)
110 Calories (0 from fat)
27g carbs (7g Sugar)
200mg Sodium
20mg potassium
25mg Caffeine
HammerGel (36g serving)
90 Calories (1 from fat)
21mg Sodium
unspecified caffeine/potassium
Gu Energy Gel (32g serving)
100 Calories (15 from fat)
negligible amount of Caffeine
My personal review on them, and my favourite of the three is probably the powergel. Its not so much whats in it as how it is delivered from package to my mouth. Because it is slightly more watery than the other two, it goes down easier and I also don't require as much water to down it. The latter is more critical to running when really all you have is a few seconds to get your nutrition and water...the other two gels requires quite a bit more water as it is dryer so to get it down into your throat requires really a water and nutrition stop.
Flavors for all three are more or less comparable, I prefer stuff with caffeine in it, others don't, i tend to get my flavors in some variant of coffee or chocolate...the citrus stuff just never goes down as well flavor wise.
You really can't go wrong with all 3, but if prices were equivalent I'll probably go for the powergel. Note that it comes in a bigger serving, but I believe that is mostly water weight. Strip out the extra water weight and it'll probably weigh in the same. It does have more sugar too, but when you're ingesting it, they all taste just as sugary.
The New York Times magazine about Philantropy
After reading this article, I feel like I'm a selfish bastard. But I still find it difficult for me to consider poverty relief a compelling goal. I feel that environmental problems are tougher and more prevailing, and if there's no habitable planet left for us to live in, it doesn't matter if everyone's wealthy --- we'd all be dead.
But you'd still be right to say that I'm a selfish bastard. After all, the biggest beneficiary of a nice planet to live on would be me --- I enjoy the outdoors significantly more than the average person, and clearly preserving the current outdoor environment is of high value to me.
So be it. Lots of people seem focused on global poverty for now. Far fewer seem concerned about global warming or climate change. Until that changes, I feel that I am justified in remaining a selfish bastard.
Labels: finance
Brad DeLong tears Alan Reynolds apart
Brad DeLong's Semi-Daily Journal: Fair and Balanced Almost Every Day: Intellectual Garbage Collection: The Unreliability of Alan Reynolds
I know better than to sully my brain with the contents of the Wall Street Journal editorial page. The rest of the newspaper is actually a first rate newspaper. It has replaced the New York Times as my must-read newspaper, mostly because of the disasters the Times have had with its Iraq coverage, as well as just plain inability to comprehend science. I'm a subscriber and will very likely renew. I just don't read the editorial pages, unless it's something written by Al Gore.
Labels: republicans are evil
Review: Warped Passages, Unraveling the Mysteries of The Universe's Hidden Dimensions
This turned out to be a really tough book to read. I'm sure it was hard to write too, since Lisa Randall carefully managed to write the book without equations (though there's a mathematical footnote here and there in a separate appendix). The first few chapters introduce you to multiple dimensions of the type and size that's being discussed in physics today. It is then followed up by an introduction to Relativity and Quantum Mechanics that is as well explained and understandable as I've read anywhere (note that I'm not quite a Physics junkie, so this doesn't say a lot).
The Standard Model of particle physics is explored thoroughly, and it's great to understand a few terms that you see in Stephen Baxter's science fiction novels, for instance. Then a discussion of string theory and the current areas of research is explained, including Lisa Randall's own research, which she does a good job of explaining without aggrandizing her role. (She is already one of the most cited Physicists in the field)
The most important reason to read this book, however, is that it actually does explain why you and I might care about string theory or high energy physics. The nature of the universe is what draws her to this research, and her enthusiasm and insight comes shining through. And unlike the speculative nature of religious inquisition, her theories can be proven or not by later generations of particle accelerators.
This is a book worth reading. Buy the paperback, since you won't be able to finish it in the time typically alloted for a library checkout. It is tough going but worth the effort.
An article about Passive Investing
San Francisco magazine had a great article about investment and investing advice. It also has several interesting bits about how Jonathan Rosenberg inoculated Google employees against the flock of vulture capitalists who wanted desperately to manage soon-to-be wealthy employees' money. I wish I could say that most employees paid attention to Bill Sharpe and Burton Malkiel, but my impression is to the contrary.
There is, in addition, a great section in the article about that rare breed, the honest financial planner:
It took Solli a couple more painful meetings and a few dozen trades to clean the parasites out of my account and reinvest the proceeds in index funds, the lifeblood of his business. Without exception, he moved me into funds that have outperformed the ones I was in, like the Vanguard REIT Index Fund, some Pimco bond and stock funds, and Artisan International. And he did it for an annual fee of .5 percent of money under management, saving me over a full percent in overall costs and a lot of taxes in the future. Then he did something I doubt any other financial manager would have done. He fired himself.
"You really don't need me anymore," he said, and closed my Aperio account that day, ending his fees, but not our relationship.
I will say that if you really are uneasy and need hand holding while you handle your investments, you can do much worse than some like the Aperio group. A 0.5% management fee is high, but someone who will fire himself after he's done fixing a mess demonstrates a high level of integrity that one simply does not see in the financial industry.
This is an article very much worth reading, and comes highly recommended.
I can tell that the end of the year is approaching...
The number of investment questions coming to me keep going up, and some of the questions are kind of poignant, indicating a lack of attention to important financial decisions that need to be made. Other comments reflect a blissful ignorance, the kind that I am almost sad to burst. In any case, here's some problems I've discovered recently.
It's not enough to save. (Though apparently most Americans don't save) Once you've saved the money, you must get off your butt and actually invest. Keeping money in say, a Tax Exempt Money Market account will at least keep you from losing the value of the money due to inflation. But if that's all you did the last year, you missed out on the 14.24% return that Vanguard's Target Retirement 2045 did over the past year.
Cost matters. The more money you have, the more it matters. If all you have is $100, a 1% fee is $1. When your portfolio is $1 million, the 1% fee has ballooned to become $10,000 a year! That's money going into a financial adviser or broker that should be going into your pocket. I consider an aggregate fee of more than 0.3% (that's right, 1/3rd of a percentage point) to be unconscionable. Go with a fee-only adviser if you can, and avoid wrap fees/wrap accounts like the plague.
The S&P 500 should no longer be your benchmark! When you're looking at an overall portfolio, the S&P 500 is only one asset (domestic stocks), which should be around 30-40% of your total asset allocation. Benchmark against something like the Vanguard Target Retirement fund, which has a reasonable allocation of international stocks and bonds. I even consider that insufficient, since that Vanguard fund does not include REITs, which as Brian says, should be a significant proportion of your portfolio. For those of you who think that wealthy people find it easy to get good financial advice --- a wealthy person I talked to recently told me proudly that his financial adviser got him a 13% return this year, beating the S&P 500. He didn't realize that Vanguard's International Index fund returned 22% this year, for instance. Or that the REIT Index returned 37%. Precious Metals also returned astounding results, but you may or may not want to havethat in your portfolio. To add insult to injury he was paying more in fees than a Vanguard investor would have, reducing his relative performance even further from that of the appropriate Vanguard Target Retirement Fund for would have been. Compound these losses year after year, add in the fees, and you'll realize why Investment Bankers get multi-million dollar bonuses while you get stuck holding the bag.
Figure out an appropriate asset allocation and stick to it! As with most things in life, the tough part isn't knowing what the right thing to do is, but doing it. The difference between those who excel and those who don't is that those who excel not only know what the right thing to do is, but they actually do it. Even if it's hard. Especially if it's hard. I find that lack of discipline is a major reason for portfolio under-performance.
I anticipate that next year will be a challenging environment to invest in. Buying a hot stock is not an investment strategy. Do your research, understand what an appropriate asset allocation is for you, and buy low cost indexed funds. It will not be exciting, and nobody will ever ask you for the hot stock tip, but that's the price of unconventional success.
The Worst Investment Strategy
By James Freeman
The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author's colleagues upon the staff of the Commission.
Should I invest my retirement savings in a mutual fund? What's the best way to select stocks for long-term growth? People naturally ask these questions when they meet the staff of the Securities and Exchange Commission's Office of Investor Education and Assistance. These are tough questions to answer, especially because, as the official referee of America's financial markets, the SEC rightly avoids rooting for particular teams. And no, we don't draft money managers to compete in a financial fantasy league.
However, while we can't tell you which investment option is the best, we're free to tell you which one is the absolute worst. We can also tell you which one is the second worst. Let's discuss that one first. The second worst investment strategy ever devised is to hand over your hard-earned savings to anyone, without first checking out the person's background and credentials. And checking out a potential investment adviser or broker does not mean simply listening to her describe how she shares your religion, ethnic background, and values. While those may be interesting things to know, you'll want to dig a little deeper. Every year at the SEC, we receive thousands of complaints of investment fraud, and while the victims who write or call us represent far less than one percent of the investing public, you don't want to be one of them.
The SEC's website has a guide to checking out the background and disciplinary history of brokers and advisers at http://www.sec.gov/investor/brokers.htm. Here you'll learn how to check our database of registered investment advisers, the NASD's broker database, and the information maintained by state securities regulators. The North American Securities Administrators Association website at www.nasaa.org can direct you to your state contacts, and also provides useful tips on avoiding scams. You can also call us toll-free at 1-800-SEC-0330. All of these resources should help you avoid the world's second worst investment strategy—being careless when selecting people to entrust with your money.
What could possibly be worse than that? Well, in fact, there is one approach that is even less likely to result in a secure retirement and financial freedom. While no one can guarantee the success of any particular investment, there is one investing approach that is guaranteed to fail. And sadly, it is an approach that we as a nation increasingly favor. This disturbingly popular option is to not save at all.
For reasons that are not entirely clear, America's savings rate has been declining for more than half a century, but since the spring of 2005, according to the Commerce Department, we've actually moved into negative territory. Not only are we as a nation not saving; for the last several quarters we've actually been spending beyond our income. For August and September of this year, personal outlays exceeded disposable personal income by more than $60 billion. This is really not a good time to hit rock-bottom -- or just below it, actually -- with our savings habits, given the expanding need for these savings. Thanks to advancing medical technology, we're all living longer, which means we will need to fund longer retirements. U.S. life expectancy inches up with each new report from the National Center for Health Statistics, and has now reached almost 78 years. For females, the news is especially bright – today's baby girls are expected to live to age 80, on average. Truly a blessing, and also a new financial challenge -- and it is not simply a challenge for retirement planning. According to the College Board, the average cost of attending a public college or university for just one year is over $12,000, and the average cost for just one year of private college is more than $29,000. These costs continue to rise faster than inflation.
Federal Reserve Chairman Ben Bernanke spoke recently on the need for increased personal saving, but lamented, "Unfortunately, many years of concentrated attention on this issue by policymakers and economists have failed to uncover a silver bullet for increasing household saving." OK, this may not be a silver bullet, but a look at the history of America's capital markets provides a very powerful reason to save today's income and invest it for tomorrow's wealth.
Over the last 80 years, long-term investors in U.S. stocks have earned, on average, a little more than 10 percent per year. For those not investing in tax-advantaged accounts such as 401(k) plans and IRAs, this works out to an average after-tax return of about 7% per year. There is absolutely no guarantee that this trend will continue, although, interestingly, the long-run real returns on U.S. stocks have remained fairly steady for a full two centuries, according to Jeremy Siegel of the University of Pennsylvania's Wharton School.
So, understanding that we cannot predict the future, let's look at what investing in America's equity markets has traditionally meant for U.S. investors. A person who managed to save $1,000, invested this money in U.S. stocks and also managed to leave it alone for 20 years would end up with more than $3,800, after taxes. If this investor could manage to avoid tapping into it for a full thirty years, the total would rise to more than $7,600. If this wise investor had the money in a tax-deferred account, her $1,000 would turn into more than $6,700 in 20 years, and a whopping $17,449.40 at the thirty-year mark. If our hypothetical long-term investor could step up and commit to saving and investing $1,000 in stocks each and every year, the long-run average says she would end up with almost $44,000 after-tax in 20 years, and more than $101,000 after thirty years. Using tax-advantaged accounts, the figures run to $63,000 and $180,000. All of these figures do not include broker or mutual fund fees, which you should watch carefully, as they can have an enormous impact on your returns. Still, history shows that for the average participant in the U.S. markets -- that's right, average, not lucky or exceptional -- long-term investing in stocks has meant enormous gains, even after paying taxes. Isn't that a great reason to save?
To help you get started please read "Get the Facts on Saving and Investing" which is available online at http://www.sec.gov/investor/pubs/roadmap.htm. Or call us toll-free at 1-800-SEC-0330 and we'll send you a copy.
James Freeman is the Investor Advocate at the U.S. Securities and Exchange Commission.
[Piaw's Note: This article re-published with permission. I'd link to it, but I couldn't find it anywhere else on the internet.]
Lick Observatory In Sight!
Enjoying Tea with Elinor on top of Mt. Hamilton
It's good to have friends in high places!
Piaw & Sy on Mt. Hamilton
Piaw and Lisa on Mt. Hamilton
Review: Smallville Season Four
I have to say that I really dislike the way story arcs are handled in Smallville. This season's big story arc revolves around three MacGuffins that are meant to be gathered by Clark Kent. Unfortunately, there are only a small handful of episodes that advance the plot --- most of the time, the plot is advanced by little side shows that don't even include Clark Kent. This makes the primary story arc feel more like something thrown in there so there's a little bit of continuity, rather than a coherent storyline that you frequently see in Buffy The Vampire Slayer, for instance.
There's also a major plot hole around those MacGuffins. If there had been prior Kryptonian visits to Earth, why isn't Earth a Krypton colony, instead of having only one survivor of Krypton? This is such a major plot hole that it ruins the credibility of the rest of the season.
Lois Lane makes an appearance in this season, really demonstrating that Smallville does not intend to stick to Superman canon. I really enjoy the portrayal of Lois Lane, however. She does not fit the damsel in distress stereotype, and frequently does kick ass. Her cousin, Smallville's star reporter Chloe Sullivan also finally discover Clark's secret, and Luthor, while being played as a sympathetic hero in previous seasons finally becomes the villain, but not before he gives Clark many chances to be honest and come clean with him.
I do miss what they did in previous seasons, where the music being played in the background is more often than not part of the character's foreground, so whenever Lex gets out of his car, for instance, the music that he's listening to stops. The mode of dressing Clark in red and blue continues, and it's kinda neat to see them do that. There is also a very well done reworking of Myxlplyx, a Superman villain that I thought would have been tough to do on TV. Sarah Carter also does a great comeback as Alicia Baker the teleporting girl in a touching two-parter.
The DVD does include a peek into the writer's room, where you see why Smallville's overall story arcs are so incoherent. The main drivers for the TV series aren't even in the room most of the time. When seeing the corresponding footage in Buffy, you'll see Joss in there all the time bashing out stories together with his writers.
All in all, worth watching, but not worth buying.
Review: Making Globalization Work
I met Josepth Stiglitz when he visited Google on his book tour. His intelligence, grasp of the issues, and obvious concern about important issues like global warming impressed me, and I looked forward to reading the book.
This is an important book, and may very well be the best book I've read all year. It answers several questions:
Why did the IMF and World Bank prescriptions for the Asian crisis fail?
What precipitated Argentina's default of its debts?
Why does the U.S. run persistent trade deficits, no matter what its budget situation is?
Why do Asian countries insist on continually buying American debt despite the fact that the money they spend doing so is better plowed back into their own countries with better returns than U.S. Treasury bonds?
Why do the most successful developing economies have high savings rate? Conventional wisdom says that those countries are best off borrowing money and building out infrastructure with debt.
Stiglitz has several proposals for all the major issues he addresses, including the inequity between rich and poor, the problems of over-fishing and global warming, and what the world can do about it. The proposals are sound, based on solid economics, and plausibly will solve major problems if only they would be implemented. Given that the USA frequently refuses to go along with proposals that promote equity over its narrow economic interest groups, Stiglitz even has proposals as to what the rest of the world can do, independent of the USA, that can ultimately put pressure on the USA to join on important issues such as global warming.
As an investor, I have substantial assets in US companies that will be hurt by many of his proposals. As a humanist and an environmentalist, nothing would make me happier than to see his proposals be implemented. As a cynical person, I'm willing to bet that his ideas will not be implemented --- our pharmaceutical lobbies as well as our energy companies are too powerful to overcome, and our democratic process not transparent enough. And I don't expect the general electorate to read this book, understand it, or vote on issues other than Gay Marriage or the National Pledge. If it were, the last 2 presidential elections wouldn't have been even close.
Nevertheless, for an understanding of how a Nobel-prize winning Economist can apply his intellect and the tools Economics provides to solve major world problems without inventing new bureaucracies, this book is a breath of fresh air. Highly recommended and worth paying full price for if your library has a long wait for this book.
The globalizers of the past twenty years may have thought that the economic doctrines they pushed for through the international institutions would by now have succeeded so well in enhancing the well-being of everyone that all would be forgiven. Perhaps they hoped that even if there were growing inequality, so long as there was money trickling down the poor could be placated. Even if a few were denied access to lifesaving medicines, if overall enough people saw their health improve they might be satisfied. As we have seen, for too many the promised benefits did not materialize...
Edward Scissorhands Musical Review
I watched this musical this past Sunday. The review will be from someone who's never seen the film version of Edwards Scissorhands, so please take that into account when reading it.
First of all, the musical is not really a musical in the sense of something like The Sound of Music or Chicago. Its a dance musical, which I'll say does not really appeal to me much. As I'm really more a fan of the word, be it spoken or written, art through music and dance alone just did not appeal very much to me.
The musical was about 2 hours long, with one intermission halfway through, and takes us through the story that most will find familiar if they've watched the movie. Even though I've never seen the movie, and there were no words, I had no problems following the story and the moods and progressions that the musical takes.
The sets were very well constructed, and the play makes judicious use of special effects and layering of sets to get its intended effects. Its one of the most special effect heavy musical I've seen, and part of that is due to the lack of dialouge I believe.
The music was very well done. Its nothing new if you've seen the movie, but even then, to hear it live and competently performed would make it new to any fans of the original Danny Elfman tracks.
The dancers and cheography was also quite competent. The fluidity and movements of both individuals and groups were quite good to my unpracticed eye, but neither was it particularly joyful to behold I thought. Again, I'm not a fan of dance musicals, so I can't really compare it to anything else.
All in all, I beleived it was quite a competently done dance musical. It doesn't break any new ground and it really is mostly a fan-service to fans of the movie. Anyone who's never seen it won't be lost, but they probably would not appreciate it as much either. Definitely people who don't appreciate dance musicals should stay away.
Overall, a 6.5 in my books. I wouldn't pay full price to see it, but at half price, it wasn't a terrible deal.
Posted by Sy at 10:44 PM 1 comments Links to this post
Review: Castle Waiting
This is a comic described as feminist fantasy, and it does live up to the name. There aren't too many men as characters in the book, and all the primary characters are women. There are lots of little fantasy touches, including a courtier who's a stork, a knight who's a horse, and some cute little demons. The art is quite well done, and the stories are frequently episodic and in many ways deeply domestic in nature. There's a quiet tone all throughout the book which is consistent.
It's quite clear, however, that this is merely the first volume of a multi-part work, and I'm following quite enough series as it is, so I cannot say I'm eagerly awaiting the next volume. As a quick read and good entertainment it's worth picking up, but I would not pay full price for it.
Greg Mankiw loses credibility
Greg Mankiw tries to pretend that it wasn't Bush's tax cuts that causes the swing from budget surplus to budget deficits. Fortunately, it looks like his readers (in the comments on his blog) catch him on this attempt to weasel out of this Republican responsibility. I have to say, I used to have respect for some of the more academic conservative types, but my meetings with both Larry Summers and now this recent series of mendacious posts by Greg have really brought them down in my eyes. In contrast, my encounter with Joe Stiglitz, Brad De Long, and of course my reading of Paul Krugman's well-written, well-analyzed articles give me confidence that the type of economic advisors Democrats consult really are in a different class of human beings and professionals than the type of person the Republicans hire.
Considering that the best software engineers are more than 100 times as productive as the median, it is no surprise that the economy does tend to do significantly better when the Democrats are in power, just based on the quality of the hired help. Not only that, while the Democrats tend to have leadership that actually pays attention to its hired help, the Republicans have had a tendency to ignore its economists as well as to do things like dismantle the Congressional Office of Science and Research, which served an incredibly important role in helping shape science and technology policy. Like David Brin says, this is one of the many good things the Democratic Congress should be able to do without any possibility of veto from the moron in the White House.
A satisfying election...
As someone who got naturalized around 1996, after Clinton got elected for a second time, it's been a frustrating 10 years to be a Democratic voter. To see this sweep (I'd never thought Montana would vote Democratic) is satisfying. Some have expressed that the Democrats won without an agenda, but to be honest, the Democrats don't need one. They proved themselves (from 1992 to 2000) to be great policy makers (compare Clinton/Gore against Bush/Cheney), able to hold down deficits while reduce inequality. I look forward to the next generation of people like Gene Sperling to bring forward and propose better ways for society as a whole to help each other and raise all boats, not just those of the wealthy and already fortunate.
There's been a lot of hand-wringing from folks like Greg Mankiw about the fate of free trade. I think Greg forgets that it was Clinton/Gore who signed NAFTA, not Bush/Cheney. Furthermore, the existing trade agreements are already done deals. Congress cannot get out of it. And to sign further trade agreements under the current trade philosophy, as Joe Stiglitz has pointed out, would be a big mistake.
Ultimately, given the choices involved, I'll trade free trade for more stem cell research, a reduction in the deficit, a re-instatement of Paygo, and the chance (however remote) of seeing universal healthcare. All these latter issues are far more important than an additional 0.5% or so GDP growth additional trade will get us anyway, especially if all such trade does is to bring pain to the lowest income workers amongst us.
Turning off full site feed
It's come to my attention that some guy's been syndicating my blog feed to feed his own advertising driven site (I'd link to the guy but that would be giving him some undeserved pagerank). Not cool --- he didn't even ask for permission, and he provides no links back to my blog, so folks who want to see the original have no way of finding out where his content is coming from, unless I embed links to my own blog entries from my posts! I hate to do this, but I'm hoping that my friends won't mind coming to my blog in person once in a while when I have long posts.
Review: Smallville Season 3
This isn't a very good season in the sense that in many ways, it feels like a setup for seasons to come. There's too much emphasis placed on Lana and Clark's relationship, which is too much like a turn-around-chase-me story for me. At some point you want to shake the people involve and say, "quit your whining and behave like a real human being." As a matter of practicality, there's only so much back-and-forthing an audience is willing to put up with before quitting a show, and the show's writers are definitely running out of tricks to play.
The highlight is that Michael Rosenbaum's Lex Luthor really comes into his own in this series --- in many ways he is the hero of the story. By turns sympathetic, decisive, capable, and most importantly he seems to be the only truly unselfish and unself-centered character in the entire season. Certainly, to watch him is to wish that the Lex Luthor in Superman Returns was written with as much sensitivity and intelligence. I can only imagine what Kevin Spacey could have done with that character.
In any case, at this point it's quite obvious that the show does not want to adhere to canon, so I'll keep watching to see how it all turns out. Hopefully, the next season's episodes resolves more mysteries.
Oh yes, there is an obligatory cliff-hanger at the end of the series. But does anyone seriously doubt that all involved will return next season?
Diversifying Away from Company Stock
Occasionally, someone will ask me for financial advice. Dan, however, turns out to have a brother, Brian, who's quite a bit of a financial maven, and after several e-mail exchanges, I decided that this exchange is worth posting on my blog for all to share.
The problem Dan has is similar to that of many other employees at companies that have succeeded financially: the stock price of company stock goes up, and pretty soon you have a lot of your net worth sitting in one stock. This isn't a desirable situation, for all sorts of reasons, but how would you transition from that situation into a balanced portfolio? I faced this problem myself a few years ago. In the following dialogue, italics are Brian's comments, and the regular text is mine.
Also, I Bonds do not appeal to me at all. Even if they are inflation-protected and tax-deferred, their rates aren't appealing (find the 'Composite Earnings Rates' table at the bottom). Going with my gut here, I would want a 4.5-5% return on this sort of thing, and it's only been in that range once in the last 8 years. Maybe I am missing something here.
We've seen as high as 6.52% rates during the 6 months after Katrina when inflation was as high as 5%. My take on I bonds is that with the tax deferral and the inflation adjustment, you'll have a hard time beating it with conventional bonds. Using the Vanguard after-tax yield calculator , for instance, you'll find that even the 3.75% California IT Tax Exempt yield after taxes grants you a 5.98% yield!
So for the years when you can take advantage of the tax deferral, the current 4.52% yield is even more impressive. Since you can control essentially when you withdraw the money after 5 years, you can for instance, time it to be on a year where you have low income, perhaps during an unpaid leave. On top of that, if the interest income gets used to cover educational expenses, such as school fees for your kids, or graduate school tuition, the entire interest income is tax free. Note that I bonds are always exempt from state taxes, so if you plan on living in California or some other high state tax state, they're a pretty good deal.
Please clarify one thing for me: I first thought you were advising AGAINST the 3.75% California IT Tax Exempt fund, but then it appears you were championing the fund. Which is it?
My take on it is that it's a good bond fund for people who live in California and are in high income tax brackets (i.e., me and Dan). But it's not as good as I bonds. So it's only for people who need more than $30000 of bonds a year in their asset allocation.
For someone your (and my) age, I strongly recommend a 90+% indexed equity portfolio with an over-weighting of small-cap and an over-weighting of value. (Really, 95% equities is where you should be, I think.) I also think you want to have at least 20% (probably 25-30%) of your portfolio in international markets (with an over-weighting of emerging markets). I am beginning to believe in REITs as a good non-stock-market-correlated diversifier as well. I think 10% of your portfolio in REITs is a good idea.
It depends on where you are. All the studies I've seen show that the optimal stock allocation for maximum withdrawal rates lie somewhere in the 82-85% range for a 60 year payout. Obviously, Dan might not be in a state where the goal is maximal withdrawal rate, but rather aggressive growth (Note that a 60 year payout period requires rather aggressive growth type portfolios). That's a decision for him to make. I'm at the point where each additional percentage of growth is less interesting to me than incremental risk is worth, hence I have an incredibly diversified portfolio (though with the equal weighting to international equities, you'll find that I'm already more aggressive than most would advocate).
I think you should rebalance your holdings every 12-18 months.
Depending on how Dan is planning to diversify out of company stock, he actually has an opportunity to incrementally rebalance his portfolio every time he diversifies away from company stock. In addition, he also has potentially substantial tax loss harvesting in the first few years that he can manage, if he was so inclined, raising his total return further.
The studies I've read show that if you can minimize that tax and transactional costs, rebalancing as frequently as every month can be beneficial. David Swensen at the Yale endowment management team rebalanced as frequently as every day! Now, the Yale endowment's structured as a non-profit, so there are no tax implications and transactional costs are very low for such large sums of money. Hence my belief in a simple portfolio. If it's simple enough, you can rebalance every quarter as you diversify out of company stock stock, and you will do it because it's easy. Anything that's too complex and involving lots of tiny sums, and you're going to not bother.
If I was in Dan's situation, I would be like to be allocated as such:
% Asset Class (Example Vanguard Fund)
17 Domestic Large-Cap Value Stock (VIVAX)
11 Domestic Large-Cap Growth Stock (VIGRX)
10 Domestic Mid-Cap Value Stock (VMVIX)
7 Domestic Mid-Cap Growth Stock (VMGIX)
10 Domestic Small-Cap Value Stock (VISVX)
5 Domestic Small-Cap Growth Stock (VISGX)
16 International Developed Markets Stock (VDMIX)
9 International Emerging Markets Stock (VEIEX)
10 REIT (VGSIX)
5 Bond (VBMFX)
Using the example Vanguard funds, that puts Dan in all passive-management funds with a portfolio-wide average of .26% expense ratio. If you have not seen it yet, Morningstar has a very handy and very simple portfolio analyzer tool. Several minutes after you enter your data and get to the 'X-Ray Overview' page, the page will auto-redirect to a page requesting you join Morningstar, but you can hit the 'Back' button as often as you want.
That's not a bad allocation. I understand the overweighting of value stocks, though I don't like having lots of small funds, since that makes the portfolio tough to manage. I also don't believe you have sufficient amounts of international stocks. I'd go for 30% at a minimum, maybe as high as 40%, but these are minor tweaks. Your general approach is correct.
I'm very cost conscious, so I have a tendency to use big positions in the appropriate aggregate fund in order to hit the $100k admiral shares hurdle and get even lower costs. I'm also a big believer in simplicity, as you can see from my critique of Bernstein's book. I'm also a big fan of having substantial portfolios in health care and energy, both as hedges against these big cost components of your cost of living, as well as the fact that they are good investments in an of themselves.
My take on the situation is that Dan will have plenty of risk as it is in his holdings of company stock. I wouldn't advocate a higher level of risk for someone who will likely still have at least 70% of his assets in one company stock. If you look at the dot com bubble days, you'll see that a portfolio with at least a 20% bond component would save folks from the massive stock market melt down and put them in a good position to invest in the stock market when it was weak. A 5% component isn't enough of a cushion to make a difference.
I have been thinking about his diversification away from company stock in a different way. Basically, I do not consider company stock as part of his allocation. He has Asset Stack A, which is full of company stock and Asset Stack B, which is his various retirement and non-retirement investment accounts. I am trying to push him to (1) find the ideal way to get as much from Asset Stack A into Asset Stack B and (2) get Asset Stack B properly allocated. Perhaps this is a horrid way of looking at his company stock holdings.
It is not horrible, since if it's the majority of his assets, then considering company stock to be part of his allocation might have you sticking a majority of the resulting funds into bonds, which isn't a great situation. But you do want to take some of that into account, because I wouldn't advise someone who had a majority of his assets in one stock to then take 95% equity in the rest of his positions either. It seems excessively risky, because the company stock is at least partially correlated with the rest of the stock market, so if the general economy did something bad then both his company stock and his 95% allocation in the equity market is going to do very badly. Now, most likely that won't happen, but if it did happen then I'm pretty sure Dan would rather be only 80% wiped out than 95% wiped out. That 15% additional cushion is very significant when you're just starting out, and the additional gain from having extra 15% allocated to stocks just isn't that much. In other words that additional bond allocation of 15% is cheap insurance.
By your statement, I gather that you think he should essentially consider company stock to be his Domestic Large-Cap Stock holdings for the foreseeable future. Therefore his best course is to basically diversify around that with his first diversifying investments going into Bonds. That would certainly be a good way to handle any drastic correction in the stock markets (which are likely to have a proportionally larger affect on a speculative stock like company stock.
Yes, or while his divesting himself out of company stock. And in fact, that's what I did when I first diversified out of company stock.
I have one concern about Dan buying I Bonds: the five-year holding time (though I know he could get out any time after 12 months with a reasonable penalty). Otherwise, I think they are wonderful investments, especially for someone in your situation. If Dan diversifies out of company stock into a more stable asset like bonds (or a CD or a savings account), I would want him to be in an asset which he could quickly and easily sell if there was a significant stock market correction; I don't think I Bonds are the right asset for that. I would prefer he be in something like the 3.75% California IT Tax Exempt fund.
This is correct analysis, but I think the difference is in the margins and it's a judgment call one way or the other. My analysis goes the other way: if inflation went up dramatically (say oil prices hit $120 a barrel or more), then the stock market would drop (or at least lose value in real terms but not nominal terms) but the value of the I bonds would go way up, so I bonds are the right thing to hold in that case. The CA Tax Exempt IT bonds, however, would find their value dropping in periods of high inflation, so they're not as good a hedge in that scenario. That's why my ideal portfolio allocation includes both inflation-protected bonds and normal bonds to cover multiple scenarios. Regular bonds do better when inflation is low, but the stock market is also low for other reasons (e.g. deflation, the 2001 terror attacks, etc).
In fact, David Swenson considers inflation protected bonds and regular bonds to be two completely different asset classes, as described in his book, Unconventional Success. Note that TIPS and I bonds are similar, with TIPS having extremely poor tax characteristics, which is why I prefer I bonds. If taxes were not an issue (say, in an IRA or 401k), then TIPS have a higher yield.
I clearly need to give bonds in general more consideration. How would you be using your bonds if the stock market dumped 30% of its value? Would you liquidate half of your bond holdings and dump them into your various stock funds? Would you liquidate ALL of your bond holdings?
I'd do my standard asset allocation thing: rebalance until my asset allocation matches what my intention was. In my case, that would be 14% bonds. So if stocks dropped by 30%, and bonds rose by 10%, I'd sell enough bonds to drop bonds back down to 14% and buy stocks to bring it up to 82%. It's psychologically very difficult to do this, by the way, since at that point you're selling winners to buy losers, but that's what accounts for the rebalancing bonus.
It would take a huge fit of greed for me to liquidate all of my bond holdings. My hope is that I'll never succumb and have the discipline to stick to my asset allocation.
I don't like more than 35% of his portfolio being in international stocks (especially with the weak US Dollar). But you are definitely swaying me towards a larger bond fund allocation for Dan.
You think the dollar's weak? You ain't seen nothing yet. The economists I've talked to (including Brad DeLong from Berkeley) think that the dollar has to drop another 30% before equilibrium is really reached. Hence for the long term, I'm bearish on the dollar. Here's Paul Krugman (a Princeton Economist) on the issue:
Trade Deficit. We finance our deficit by borrowing. This cannot go on indefinitely. Stein's law – re: Herbert Stein – "if something cannot go on forever it will stop." If this happens then any kind of scenario will have to involve a substantial fall in the dollar. And the markets are not taking this into account. Inflation adjusted bond rates seem incorrectly priced, compared to the EU or Japan. Some bonds are being bought by foreign based banks for non-market reasons. But many are not. So the market, if it took the dollar decline into account, would price this in. There will be a Wily Coyote moment. When? I would have said the answer was two years ago, so I've been wrong before. But it will happen at some point.
As for the number of funds, I don't think it is difficult to manage 10 funds, but then again I don't have to manage these... Dan does He could reduce complexity at the risk of missing out on some of the overweightings I allocated, but I feel very strongly about overweighting value and somewhat strongly about overweighting small-cap.
I'm sure that over the long run the overweightings you describe are true, but in the short run while building up a portfolio, I'm not positive the increased cost of having to rebalance all these and ending up with lots of small accounts doesn't swamp any benefit you get from the proportionate overweighting. My impression was that the relative gain is small, but maybe you're seeing better numbers than I am.
While Dan is doing the transitioning allocation thing, it probably is easiest for him to reduce the number of funds he holds. After a cursory examination, I like this allocation for his first round of diversifying out of company stock:
40% I Bonds
30% International Index (VGTSX)
15% Domestic Small-Cap Value (VISVX)
15% REIT (VGSIX)
This certainly diversifies all the money away from domestic large-cap growth stocks. It gives him a relatively liquid non-S&P 500 correlated holding (REIT). It gives him tax-deferred inflation-protected bonds to sell and put in the market if there is a major correction (though he would need to wait 12 months to dump his I Bonds into anything else... but this is good way to keep someone from a knee-jerk reaction to a correction that hasn't finished correcting yet).
Next round, we add some Domestic Small-Cap Growth. Next round, some regular bonds. Next round, some Domestic Mid-Cap Value. Next, some Domestic Large-Cap Value. Eventually, we'll get him to a widely diversified asset allocation (with more bonds and a larger International holding on your sage advice).
I have pushed Dan to talk to a CPA specifically because I want him to protect as much of his assets from tax loss as possible.
Ah. I didn't make myself clear. Tax loss harvesting has nothing to do with tax planning. Let me give you an example. Suppose you bought the Vanguard Total International Index Fund. This composes of something like 50% Vanguard Europe Index fund, 30% Vanguard Pacific Index Fund, and 20% Vanguard Emerging Markets Index fund. Suppose the first year you bought the Total International Fund it went down by say, $2000. What you do is you sell the fund and buy its underlying components. This lets you take advantage of the $2000 tax loss to offset other capital gains (from say, selling more company stock), while preserving your underlying asset allocation. You can rinse and repeat in subsequent years. Of course, sooner or later (hopefully sooner rather than later) you run out of tax losses to harvest, but it's a useful technique in the first few years, when you're diversifying out of company stock.
I actually didn't know this was called 'tax-loss harvesting'.
Indeed. It is the basis of several financial companies, including Parametric and Burton Malkiel's latest company, Active Investment Advisors.
I am familiar with the concept and actually recently talked to Dan about using it if a very specific set of circumstances arose with his company stock. I am assuming whichever tax advisor Dan talks to will bring this strategy to his attention.
It'll be a rare advisor in my experience that's with it enough to mention it. This is the kind of stuff you have to figure out for yourself. (Yep, advisors are pretty worthless) It is a myth that wealthy people can easily find good advisors. It's not easy, and it's far too easy to find people just willing to take your money instead.
I gather that you also do not see much point in paying someone to tell you how to invest your money. Are you in agreement with me that Dan probably shouldn't bother spending money on a CFP/CFA?
I haven't found any worth paying for, though if you had $250k sitting around in Vanguard funds (or were willing to put $100k into various Vanguard funds), they'll draw up a financial plan for free. I had that one a few years ago, and it's a competent plan, but too conservative. It became very obvious to me that I knew significantly more than the advisor I spoke with. Ultimately, the best use of the money is to buy a copy of Burton Malkiel's A Random Walk Down Wall Street, and then use the rest of the money to buy yourself a day of vacation and use that day to explore John Greaney's Retire Early Home Page.
[Brian notes: Much of my thinking has been altered during this (lengthy) conversation. For example, after reading THE REBALANCING BONUS: Theory and Practice, I now think rebalancing quarterly is a more advantageous strategy. Additionally, I have been swayed to believing that a bond holding larger than 5% can definitely be appropriate for people in their twenties who aren't expecting to retire any time soon. And I Bonds very much appeal to me after Piaw's description. I don't really consider myself a 'financial maven' at this point, but I think I am well ahead of the game for most people my age (even compared to the few people I know in the financial industry). I have much more reading to do, and Piaw's recommendations are quickly moving to the top of my reading list.
To anyone reading this post, I want to say this: Retirement seems very far away when you are in your twenties. If you have a high income and have had a windfall from stock, you may think to yourself that you can put off financial planning for even longer. This really is backwards thinking because the more money you can put away now, the less you will need to save in the future (though once you start saving, you will find future saving to be almost automatic). Spend a weekend afternoon familiarizing yourself with basic investment concepts. Then spend another weekend afternoon learning about the importance of low-cost diversified passive asset allocation (aka diversified indexing). Then talk to a CPA about how best to manage the tax ramifications of your wealth. Once you've gotten that far, you are in good shape to start managing your own finances for years to come. Why do you want to manage your own finances? Because the person you can most trust with your money is you.
And a note on balance: While saving is very important while you are young, do not forget to enjoy your wealth to a moderated degree. You have studied hard. You work hard. You don't have to play hard, but you should play SOME. I highly recommend travel, but that's a personal preference.]
Thanks Brian! It behooves me to remind anyone who's read this far that you shouldn't take financial advice from a couple of strangers on the internet. This exchange is provided for informational purposes, and not to recommend any action or any financial products. No one involved was a financial professional.
Anecdotal data is very misleading
Lots of people travel to Europe and then come back and rave about how good the drivers are in other countries and how politely they treat cyclists. I'm in fact one of them. However, I've had extremely poor experiences in Italy, where the only time I got buzzed in all of Europe was down the Italian side of Tenda pass, with the other lane completely clear and free. Even in
California this doesn't happen to me. In an effort to understand the statistics, I took a look at a few web-sites.
An examination of european cycling statistics shows that the Italians are by far the most dangerous to cyclists in all of Europe, followed by the British and the Austrians.
By contrast, the US is at 0.2 fatalities per million mile (source here). Translating that into the kilometer chart provided in the Europen statistics link, that would be 12 fatalities per 100 million kilometers, which isn't a whole lot worse than the Italians (who are at 11 fatalities per 100 million kilometers).
According to the California Highway Patrol Integrated Statistics, cycling in California is no worse than cycling in other parts of the USA, after correcting for the fact that more cycling happens in California than in many other states. In fact, the statistics point out that it's probably considerably better.
All in all, my suspicions are confirmed: the two worst countries to ride a bike in are the US and Italy.
Review of Prima Taste
So I went to Prima Taste on Friday with a friend. We're both from Singy/M'sia.
Food is not very good. Far below par of either Singaporean/Malaysain Restaurant in San Francisco or Layang Layang in Cupertino.
We ordered the following dishes:
Nasi Lemak with Rendang Chicken
Mee Goreng
Roti Canai
Kang Kong Belachan
The Nasi Lemak came on a big plate with about one bowl of rice, the sambal on the side, and the rendang chicken in a bowl. The ikan bilis was spread all around and there was one hard boiled egg sliced also on the plate.
The rice was the best part of this nasi lemak plate as the sambal was very weak on spice and flavor and the rendang chicken not tasting anything like rendang chicken. More like slightly spiced up chicken in a red tasteless sauce.
This was passable. It falls far below the standard at Layang Layang though. The flavoring and the spice level was all off and they didn't fry it quite long enough. So rather than a super dry fried noodle dish, it came off as slightly damp, as if all the water used to boil the noodles wasn't quite gone yet. I forgot what the mee goreng came with, but i think it was egg and chicken and some sprouts. Very forgettable.
This was bad. The roti canai was very rubbery. the curry had the flavor but no spice. We did let the roti go cold a little bit becuase we were eating other stuff, but still, disappointing. No fragrance in the roti or the curry.
Probably the best dish we had. The sauce was just about right, the ingredients was right too (though my friend who's from penang commented that in penang they don't put sprouts on the rojak), with ample amounts of pineapple, cucumbers and chinese donuts, tau pok.
This was the worst dish. No belachan at all! they only cooked it with garlic and oil
So in summary, I have to say, avoid Prima Taste with your life! Go to layang layang, or even that place in Milpitas square! Better food! Primataste is cheap though, but its not worth it in my opinion!
-Sy
Review: Kingdom Coming, by Michelle Goldberg
I have to admit that Salon Magazine is one of my favorite on-line magazines. It's unabashedly liberal, thoughtful, and has impeccable taste. Michelle Goldberg is a senior editor there, and writes some of the more interesting political articles.
Her book is about the rise of the religious conservatism and Christian Nationalism, whose goal it is to turn the United States into a Christian Nation, with One Nation Under God. That this is a burgeoning grass-roots movement there is no doubt, from both the anti-evolutionary movements, the anti-abortion movements, the anti-gay marriage movements, as well as the christianization of today's politics, where every politician has to at least pay lip-service to Christianity.
There's a lot of fear-mongering in this book, drawing many parallels between the the totalitarian movements (fascism among others) and the goals of the Christian Nationalistic movements. What is stunning though is the pessimism she has, as well as the lack of any intelligent political strategy that she thinks is effective. Off the top of my head I can think of many effective ones relying on the factionalization of the Christian religion. Seriously, Anglicanism, Southern Baptism, Presbytarianism, and many other Christian factions can be considered separate religions with little in common. Many of them, for instance, would be horrified to think of a federal government that's controlled by the Mormons, for instance. This could easily be used to promote a stricter separation of Church and State.
Nonetheless, I do intend to keep an up to date passport in case things do turn out for the worst and I have to flee the country. In any case, foreign investments look more and more appealing --- a country gripped by fundamentalism is likely to become one in which technology and science is neglected, leaving an opportunity for non-Americans to thrive and leave U.S. corporations behind in competitive markets.
Whenever I talk about the growing power of the evangelical right with friends and acquaintances, they always ask the same question: What can we do? Usually I reply with a joke: Keep a bag packed and your passport current. I don't really mean it, but my underlying anxiety is genuine... In the coming months and years, we will probably see the curtailment of the civil rights that gay people, women, and religious minorities have won in the last few decades... From what I've witnessed while researching this book, I'm convinced that Christian nationalist symbolism and ideology will increasingly pervade public life.
Dan Gilbert on Happiness
(Link requires flash)
An excellent talk on Happiness by Harvard psychology professor. Very much worth the 22 minutes it takes to watch it. (Thanks to Greg Mankiw for the pointer) There's also a recent wall street journal article that's worth reading that follows up with interesting titbits like:
The one piece of unhappiness that people never get used to is a bad commute. You can't get used to it because a bad commute is a different kind of hell every day. So the worst thing you can do is to buy a bigger house in the suburbs and get a bad commute out of it. The happiness from having a bigger house dissipates really quickly, but the bad commute's unhappiness stays around forever.
People under-estimate the pleasures of socializing, chatting with friends, and otherwise goofing off.
If you know me personally, send me e-mail and I'll dig up the article and forward it to you. Or if you already have a Wall Street Journal subscription, This Link is good for 60 days.
And for those of you who are wealthy (you know who you are), here's a pointer on how to spend that money to maximize happiness.
The Omnivore's Dilemna
The Omnivore's Dilemna should be familiar to most of us: since us humans can pretty much eat anything, how do we figure out what's good for us to eat? In the modern age, our instincts (which lean heavily towards the sweet and the savory) can easily lead us wrong.
Michael Pollan explores this in four meals: the industrial meal, as typified by the fast food industry, the industrial organic meal, as typified by the Whole Foods culture, the beyond organic meal, with grass-fed, management intensive farming produce, and finally the hunter/gatherer meal, where he hunted and foraged for his own food.
While he does not measure up to the platonic ideals of some of these meals, he does manage to cover a lot of the issues involved in food. After reading this book, you will probably never look at corn fed beef the same way again. But Whole Foods doesn't come across very well either --- its aisles come in for intense scrutiny, and the fact is that a large scale operation like Whole Foods cannot live up to the ideals as espoused by the original organic farming credo, which means that the organic label is now as much marketing as it is an indication of how the food is made.
I am of two minds about the attitudes behind a book like this. On one hand, how do you account for the fact that modern humans have the longest lifespans today, compared to humans living in the past? When farmers did not have fossil fuels and petroleum based fertilizers, crop failures were common, and people did starve! While industrialized agriculture indeed is fossil-fuel intensive and undesirable in many ways, cheap food has in many ways benefited the poorest among us, and I for one wouldn't go back to the days when a crop failure could doom thousands to starvation.
On the other hand, after reading a book like this, I become more sensitized to how the food is grown. There are techniques (such as those being used by Polyface Farms, as described in the book) where the farming isn't just good for profits, but also does good things for the land the animals graze on, and keeps the animals happy as well. The resulting food is also much better for you, nutritionally. It won't be cheap, but that's why we have good jobs, right? So selfishly, what I want is for this type of farming to take over, pay more for the food, and in the mean time reduce global warming emissions and pollution. That's worth the price to me.
Focus in for a moment on just the relationship between Budger and the tuft of fescue she's tearing from its crown. Those blades of grass have spent this long June day turning sunlight into sugars... To feed the photosynthetic process the grass's roots have drawn water and minerals up from deep in the soil (some grasses can sink their roots as much as six feet down), minerals that soon will become part of this cow. Chances are Budger has also chosen exactly which grasses to eat first, depending on whatever minerals her body craves that day; some species supply her more magnesium, others more potassiuml. (If she's feeling ill she might go for the plantain, a forb whose leaves contain antibiotic compounds; grazing cattle instinctively use the diversity of the salad bar to medicate themselves.)
Joseph Stiglitz @ Google
One of the best perks of working at Google is the series of authors and excellent speakers talking at Google. Today, we had Nobel Prize winner Joseph Stiglitz visiting to discuss his book, Making Globalization Work. As an economics junkie, I usually go to these talks not really expecting to learn much, since anything that's comprehensible to the general audience would usually have showed up in my prior reading.
In this case, though I was wrong. There were a lot of surprising facts I learnt during the talk that I didn't know before:
The Uruguay round of trade talks actually made poor countries poorer. What had happened was that the cold war ended. While the USA had a major interest in being nice to the poorer countries while the cold war was going on, once the cold war had ended, trade representatives sent to WTO talks essentially changed gears to try to get the best deals they could. Examples included the intellectual property agreements which essentially prohibited cheap generic drug copies of Pharmaceutical medicines. These essentially wrote the death sentences of many many people in poor countries.
Many pro globalization apologists stated that economic theory means that free trade is a win-win situation for the countries as a hold. "The rising tide lifts all boats." What really happened was that "The riptide wrecks the smallest boats." All Economic theory predicts is that free trade provides sufficient gains such that the winners can compensate the losers and still come out ahead (hence the "win-win" part). What it does not say is that the winners will compensate the losers, and in most cases what has happened is that the winners do not. In fact, in many poorer countries what has happened is that the winners try to create a perpetual monopoly of many key resources such that most of the benefits of trade go to them, leaving the rest of the country in poverty. In Venezuela, for instance, most of the oil profits until Chavez came along went to a tiny portion of society leaving the rest of the society poor. Remember that this was oil in the ground --- the wealthy people of Venezuela did not put the oil there. They just controlled access to the resource and used it to their benefits.
(I've heard over and over again the arguments for trade, but to hear a Nobel prize winner provide the clear arguments that trade without spreading the benefits of trade around society will eventually lead to a backlash against trade is a wonderful thing to my ears)
He went on to discuss intellectual property rights, stating that if you don't get the laws governing IP rights correct, you get all the disadvantages of restricting knowledge, without any of the incentives that you were trying to get by having IP property. For example, the Wright brothers got a patent on airplane after Kitty Hawk, but so did Curtiss, and no private company making planes could afford to pay both parties the patent fees, so it wasn't until World War I when the government set in and said that this was too important for you to hold up development that the aircraft industry got its real start.
Another example: In the race to decode the human genome, we already had a plan as to how to go about doing it and a schedule. However, private companies wanted to pick out the valuable genes to get a patent on the gene, so they raced ahead on the decoding. The social value: it was decoded slightly earlier, a small benefit if it is indeed one. The social cost: someone got a patent on the gene related to breast cancer. Another company wanted to provide a free test for breast cancer, but the patent holder wanted money. Result: large numbers of people will die unnecessarily. Canada decided not to honor this patent, but the US still honors it.
The big drug companies have not decided to use their money for more research on drugs that would save more people, but instead spent its money on marketing, advertising, and lifestyle drugs for people in rich countries. This is rational economic behavior, but it means that we've gotten our incentive system wrong. There's a proposal in his book where he discusses using a prize system rather than a monopoly system to disseminate knowledge as widely as possible. When the incentives are not working in the right direction, and we should redesign the incentives correctly to improve both economic efficiency and equity.
He finished off with a discussion of Global Warming, which to him exemplified the failure of globalization --- even if we solve the problem of economic globalization, if we don't solve our environmental problems, it might not matter. He said Kyoto had several failures, chiefest of which was the US not being a signatory, and protection of forests not being put into place. (i.e., Countries got more credit for cutting down their trees and then planting new trees, rather than for protecting the ones they had)
He ended the talk by saying that he was still optimistic that we could still make globalization work, and that things were still in a fluid stage. All I can say is that I hope he's right.
While getting my copy of his book signed, I made a statement that globalization's ill effects have only started hitting the media only when the white collar workers were affected --- when all it affected was workers in Detroit, nobody paid attention. He laughed and said "Yes. It's only a story when the reporter's next door neighbour's job gets outsourced to India. And it's a problem for free trade supporters. When Ross Perot said in the 1992 election words like 'Giant Sucking Sound', we could say, 'We didn't want those jobs anyway. We want good jobs, high wage jobs like programmers, etc.' When it's programmer jobs getting outsourced to India, we can't say that anymore."
Review: Warped Passages, Unraveling the Mysteries ...


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