Designing better futures

Gene impact beats i-pad in the long run

Shocker folks, the i-pad will grow in popularity, but won't change cultural institutions, values or belief systems much.

Gene testing and diagnostics will change cultural institutions, values and belief systems.  These are some old gene chips to the left.  I used to help run a project that played around with these. 

A firm called Counsyl is releasing a new chip that tests for 100 genetic related dis-orders.  This $700-800 chip will allow couples to determine the likelihood of a common or rare dis-order being passed down.

Counsyl isn't really that big a piece of news for those in the know.  There are probably hundreds if not thousands of the 23,000 listed syndromes that will show a genetic pre-cursor and or later deterministic environmental factor. 

The cost performance curve of sequencing which shames moore's law, means that a multi-hundred million dollar sequencing project in 2002 is now about $4,000. Nature Article: The changing economics of DNA synthesis.

You, your spouse, kids etc. will most likely be able to be sequenced for less than a $1,000 in 2-3 years.  If you want to understand how fast this world is looming, check out the  Carlson curves on the right hand side of Rob Carlsons page, they are the Moore's law of genetics.  There will be an ecosystem of multi-billion dollar service providers in this space in 5-7 years.

I bet that in 10 years sequencing of the flora in the gut will be as common as in-vivo protein analysis.  Trivia point: for every one "human cell" in your body there are 10 bacteria, they are just significantly smaller.  We are all walking and talking microbial ecosystems.

Counsyl has put 100 diagnostic tests on a chip.  In a few months, quarters etc. you will most likely see firms put thousands of tests on a chip while the price point stays about the same.  The information flood will be huge, the social impact even larger.

The true impact of any technology is the deeper philosophical situations that are opened up.  Rapid transport, steamships, trains, jets all shrank the world and made us all more neighborly or warly.  The internet mixed up our ideas and concepts of culture and boundaries, etc.

Genes let us ask: who am I? where did I come from? How long will I be here and what will my offspring be like.  The answers will be crude and very fuzzy ripe for mis-interpretation and mischief.  Genetics is accurate, phenotypic outcomes are fuzzy as they depend on lots of variables.

Quiztime involving the simple 100 test from Counsyl:

1. When should a couple take a genetic test, before/after marriage, dating, never etc.?
2. If you don't take the test and something occurs with your child, would you still feel OK about your choice?
3. What are the social implications for access to the test.  Should it be made available to everyone?
4. At what age should someone be aware of their genetic risk or opportunity profile (adulthood), sexual maturity?
5. If you take the test, does you have an obligation to share information with siblings who don't take the test but may be considering having a child and at risk?

The genee (sic) is coming out of the bottle folks and is faster than you can imagine.  Forget hacking your i-pad to support flash, and think about hacking your genes.  more on genes here just scroll down.

Checklists, hedge funds and human behaviour

Checklists are not sexy, but their results are.  I just finished the Checklist Manifesto by Atul Gawande.  I am sold and you should be as well. Checklists save lives, make money and make life less stressful.

Outperformance seems to be associated with repeat process and efficient group communication. Checklists allow for managing individual and team processes for better outcomes.  The book gives a great overview of how, where and for whom checklists work. How to design and apply a checklist for super-ordinate goals is an emerging science/art.

As a hedge fund guy and anthropologist, I am fascinated.  Checklist dynamics applied correctly could be a hugely important innovation in group dynamics and increasing human potential.  As a tool for facilitating group activity they appear to be incredibly effective.  Read the book to understand how they work.  It involves, group dynamics, social interactions, reducing cognitive load and a host of other things.

Checklists allow for efficiency of semi-structured tasks and better individual and group behaviour goal directed behaviour.  Effective checklists are finely tuned for effectiveness, brevity and looseness.  Looseness is required for creativity to come in.

Great design of a bridge, airplane, product or service comes from the understanding of a goal and the design problems constraints.  Checklists seem to work the same way but in a behavioural real time way.  By providing cognitive, behavioural and group constraints, individuals are freed to contribute more effectively when need be collaboratively. 

The Checklist manifesto is a great book and gripping read.  Converting process into gripping human drama is no easy feat, but this thing reads like an action movie.  My copy of this book is already on loan request to a friend who is a risk manager for multi-billion $ Fund of Funds.  

See and here a check list in action saving lives as Sully lands in the Hudson river and saves lives.  The video is a also described in the book.

Here is Mohnish Prabai's value investor checklist.  He only gives a bit away. 

How Mohnish Pabrai Uses Checklists

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I am working on a Charlie Munger type approach to the investing problem.  Charlie preaches inversion as a way to solve problems.  So here is an inversion technique to build a value investing checklist, find some great sounding investments that failed or companies that disappeared from an industry and then list why they failed.   That causal list becomes your checklist.  You can start with firms or experiences that didn't work out.  After collecting data on 30-50 a few patterns should emerge.

Group the failure points or weaknesses into clusters, management, competitive loss, industry type etc.  you could even group according to Porters 5 forces etc.  That becomes your checklist.  Each industry has its own subtleties and the key is to identify the moats in each one and then run checklists around them. 

If you succeed you will end up with a few key rules or heuristics that makes groups able to makes decisions and act, faster, better and safer.  As a hedge fund you might try organizing into teams either by sector/asset class or specialty.  Instead of a beverage analyst, auto, tech etc. how about forensic accounting specialist, emerging threat specialist, regulatory specialist, organizational psychologist to analyze corporate culture etc. to analyze impact for a firm, oh and an anthropologist to capture major cultural trends that may be fading or rising.  This approach is probably cheaper and more effective than trying to find all those skills in one person.

One more note on process and safety: as many other have called for, I wish we had an economic/policy NTSB (national transportation safety board) to do post mortems on accidents.  Ideally the crash board, would have better resources than a university and be independent of industry and congress.  Seeing bubbles after the fact is easy, determining true causation isn't.

Microinsurance looks promising for millions

Leapfrog delivers financial products to the bottom of the pyramid.

Disclosure, Andy used to work in the same office I did in New York.  I think and hope he is onto something big.  Being able to believe, act and live long term are some of the keys to sustained development.  Insurance allows for more choice, innovation and freedom of action.

Andy's approach like micro-finance has many interesting innovations relevant to developing countries in delivery and management which make it feasible.  He uses existing social structures, cultural institutions and norms to help deliver and market the product.

Price innovation at a $1 price point is easy, understanding packaging, support and motivations and commercial viability at that price is the key to good service and product design.  Kind of an applied systems thinking anthropology approach to the problem, gotta like that.

How Bling works, as viewed by an anthropologist art historian.

Bling a word which may have been created as early as the 50's or 60's could be described as "the sound a diamond makes when sunlight hits it."  

In the oughties this evocative term, bling described the social display of wealth among young urban youth or Donald Trump.  The thesis being that by adorning oneself with the trappings of material wealth, the individual achieved ascribed status, power and socially desired attributes.  This is an example of positive materialism used for social standing. 

Bling eras captured in Painting & Architecture.

An old school architectural bling style is called rococo seen at the right.

In painting this can be seen in portraiture during different periods.  Check out Henry the Eighth.  The concept of lots of gold chains, furs and ladies is old school English bling.  Hint: the term family jewels is derived from the decorative codpiece.  I am surprised hip hop culture missed this trick.

Enter anti-bling

The pendulum swings as it always does in the other direction.  Humility, hardship and suffering and earned or achieved status become more important as indicative of value and self worth in the competition for social standing. 

The Monty Python video below illustrates this well.  Different cultures and sub-cultures handle the bling continuum differently.  One person's vulgar display is another's sense of self-expression.  Contemporary urban youth American culture refers to an anti-bling stance as "keepin' it real", which indicates a degree of authenticity derived from earned status and humility.

If you are a marketer or play a role in culture creation and facilitation, this is important.  Being from Iowa gives me a bit of an anti-bling stance and a bias for earned versus ascribed social status, keeping it real if you will.

MapAction part of the plumbing of Humanitarian Relief

Checklists, processes, communication, clean water, infrastructure.  Not sexy, but the plumbing of functioning society that makes it all happen. Check lists are coming back into vogue.  When that plumbing fails society can fail.  

Maps are infrastructure and vital for co-ordinated efforts.

When disaster hits MapAction Helps out with live updated maps for relief.  This resource will become ever more important with crowdsourcing.  Co-ordinating resources in disaster zones is a challenge and this looks like a very interesting NGO to watch and support.

I am a big map fan.  We keep a 1957 globe in our living room as it shows how things change over time but still stay the same. My wife and I have lived, traveled or worked in dozens of countries.

My own interest in geography aside from tourism and anthropology field adventures is about dead capital, which I would like to help get rid of. 

For those looking for adventure and charity, check out this rally from London to The Gambia in $250 cars.  The cars are auctioned off in The Gambia for Charity.

We were all signed up and ready for this adventure in 2003.  I was pouring over maps and guidebooks all jazzed. At the last minute we had to chicken out due to work (or lack thereof) issues.  I had camped and traveled for a few weeks in Morocco in college and spent a solid month in the Nigerian southern sub-Sahara desert and was excited.

This video kind of explains the drive across France, Spain, Morocco, Western Sahara, Mauritania etc.:

My wife had a slightly rusted champagne colored 1983 BMW 3 series worth about $500.  It was already for a one way road trip to The Gambia in West Africa.  I was thrilled about the rally and will eventually do it.

During the summer of 03 the little car took us safely from London to Southern Sweden.  Sadly it was left behind in London when we came to the US.  It is now safely in the hands of a London based drummer.

Keynes vs. Hayek, throwdown video

Farnam street may be the best econoblog you never heard of.  Farnam Street's emphasis on common sense, ethics and behaviour is fantastic and highly educational.

Here is the latest find, see video below. For the record, I am a bigger fan of Hayek, but both are more schools of philosphy than arbiters of a true science. 

Keynes stimulus is nice in theory but most centralized distributions of wealth provide below reasonable returns due to political allocators at the switch. Keynes also appeals to the desire for control in crisis and the need to "do something".  This isn't necessarily a good thing.

Those interested in learning more about the Austrian school of thought might look at the Ludwig von Mises Institute.

In some scenarios, stimuloss (sic) crowds out true economic actors.  This limits or damages true sustainable economic growth.  Govt' sponsored weeds crowding out true green shoots isn't a good thing.  

In truly dire cases politicians gain far too much power by controlloing and directing massive flows of wealth.  Japan and construction is a good case in point.  Check out the resource curse phenomenon in some countries to understand this feedback loop at its worst.

The homeless live in the subway and Manhattan in New York

Architecture for humanity is helping get volunteers for the 2010 New York Homeless Survey.  They still need volunteers in the Bronx and Staten Island.

Here are the results of previous surveys.  most of the homeless live in Manhattan and on the subways.

For those really interested in understanding homelessness: Here is an anthropology paper with a little story about drug dealers and homeless people mixing with anthropologists.  It shows that in these groups respect is earned and not given automatically. Accessing Distrustful Populations: Lessons from ethnographic research with the street homeless

 

For a specific study or female homelessness this book may provide insight.

Silent Sisters: An Ethnography Of Homeless Women

Has the US hit peak Tweet?

Oh no.  Peak tweet may have been hit in July in the US.  Data here.

For those of you trying to figure out what the hell twitter is, have a look here at some quick powerpoint summaries.

My own analysis of the social driver behind twitter is here. The video is very funny.

Property Rights index one key to a $9 trillion dead capital problem

I believe efficient and recognized property rights to land etc. are one of the keys to sustainable economic development.  Hernando de Soto  puts forth the case for property rights very well and has aided in the registration of hundreds of thousands if not million of homes that were dead capital.  I put de Soto as an odds on favorite for a Nobel in Economics or the peace prize in the coming years.  de Soto and Amartya Sen are truly interesting economists.

Dead Capital

To learn more about dead capital visit here.  There is $9 trillion sitting in developing countries ready to be used, by their own citizens.  That is development power waiting to be used.  No foreign aid required.

Here is the latest Property Rights index showing the world where it is easy to register property. There is a strong correlation between property rights and GDP/capita and most other development indicators.  Correlation isn't causation, but there is some compelling arguments here. 

International Property Rights Index is the publisher of the report.  The follow in the model of the Doing Business report put out by the World Bank, which is conceptually similar to Transparency International's work on corruption perceptions indexes.

Dead Capital fixes have a high ROI

For those interested in understanding big global problems and why property rights change has such a high ROI check out this book Solutions to the World's Biggest Problems.  It totally rocks.

IPRI and Transparency International do a lot of good and my hope is that the publications create social pressure for neighboring countries to compete positively to improve their relative metrics.  My only wish would be that the data was open and that the details of the process for property and business registration were public in a wiki format, so that wonks could start hacking and advocate positive changes.  We all need more live capital.

how an index and data help with these problems.

1. Raise awareness using simple comparative metrics
2. Allow for research econometric and social into outcomes costs and impacts
3. Raise competitive instinct in peer countries
4. Provide a public forum for reflection and desire for relative improvement over time

My own idea is to have a process based "workflow" wiki, to allow technocrats and field researchers and lay people to capture and study real world and best practices in property registration, transfer, recognition and dispute resolution. 

Best practice for property registration means, cheap, fast and law abiding. The idea is that various states and regions can study solutions can best practices can be deployed.  The federal system is predicated upon this idea for nations.  Info sharing between states, technocrats and individual actors could free up trillions for poor people.  Property Wiki is that idea.

James Montier: refreshingly honest about Finance as mostly junk

James Montier doesn't wear ties or suits etc.  He doesn't look smooth or polished.  He isn't the type you would put in a line-up of likely bankers, and yet he is refreshingly honest and knowledgeable about investing. 

Montier is an economist and global equity strategist at Dresdner Kleinwort Wasserstein, a German-owned investment bank. 

Montier has common sense and the ability to sum up some basic arguments very well.  If you are interested in investments, looking at an MBA etc. you find this video very interesting.

A Fast Company bio is here.

James also doesn't scream or yell seeking to be a personality, he just has a very honest voice.

There are some excellent points made in this video.  Well worth the time.

Some Quotes from the video:  "We intentionally screw people.  We have become marketing bitches.  Even Fama and French don't believe in the Efficient Market Hypothesis."

oh and Montier's synthesis of economic data with leading-edge behavioral research got him named London's "best global strategist" last year.

Checking in with Charlie Munger & the BBC

Charlie Munger, Warren Buffett's business partner is another son of Omaha, who keeps things simple by reducing complexity via multiple mental frameworks.  Charlie is a little more direct in approach and less approachable to the layman, but understands key concepts such as feedback loops, linked systems and human behavioral biases.  He is also big on ethics.  I strongly recommend his book.

He isn't very big on the win at all costs attitude of the alpha male type.  He is also not very impressed with Wall Street.  Pretty interesting stuff from one of the world's best investors.

Crayola evolution 1903-2010

Product, toy, creative tool, cultural icon and study in continuous business evolution.  Here is the evolution of the Crayola spectrum courtesy of Weather Sealed.

 

There are couple of stories here from business evolution, cultural mood and product evolution.  The math geek in me is fascinated to know if product bifurcation approximates the Feigenbaum constant.   Crayola's color count doubles every 28 years. 

From a business value analysis perspective, any product that appears to be a commodity, yet survives so long, has such brand recognition must have some hidden moats.  What are they, distribution, brand equity, great taste ;) ?

Maps, Haiti and development via digital tools

I am thinking & working slowly on the concept of facilitating the registration of property via open source tools.

The idea is property law wiki.

Making Property Law Wiki Real

View more presentations from ngogerty.

  It is estimated by Hernando de Soto that there is $9.3 Trillion worth of dead capital in the world. World bank video here These are resources such as real estate that can't be fully used or valued because they are un registered.  The reasons for this are myriad as will be the solutions.

The idea is that by freeing capital via registration it can be used more efficiently.  For example if you are a 3rd generation squatter in an urban city in a developing country, you can't officially sell your house.  Any value you capture will be at a severe discount.  You can't borrow against your home or officially hand it to your family members.  If you want to learn more about the opportunity of unleashing resources that already exist in a country check this video out or look around on the site at this link.

Google maps is a tool that allows for people to collectively identify and place resources and assets into the public domain. 

Haiti for example is in crisis and the available resources are fluid.  A dynamic updatable map represents a significant strategic and tactical tool to deploy resources.  If you want to learn more about Google maps or have experience on the ground in Haiti and can update the map do so.

From a digital geek perspective, it seems like having various organizations have updatable layers and resource tracking that they could expose to the proper authorities or co-ordinating agencies would be very helpful.  Kind of a 3d wikipedia map.  Then make it a mashup supporting flickr links etc. so that quick snapshots and notations could be made on the ground. 

This all sounds overly high tech, but the tools to do it will get cheaper and easier and are already emerging.  Super ordinate tasks such as disaster relief logistics are perfect for this type of thing.  Architecture for Humanity is doing some things.

The World Bank of whom I am fairly critical has done some really good work with the Doing Business Reports.  It does all the right things in terms of measuring, soft competitive pressure via ranking and public availability of information. I hope they or someone else does the same type of work for property registration and recognition.  It is a huge opportunity.

To sum up good maps and live updated detailed maps in place before disaster can save precious hours and days when a disaster happens.

Full Disclosure: I lived in Haiti for 6 months as a small child.

Would you pay $3.4 million for the average Manhattan apartment, they do something similar in Beijing?

Urban China is in the midst of a property bubble that may make a 1630 Dutch tulip look like a bargain.

I am not a China expert etc. just a guy who seeks the rare sense that gets mislabeled common. I am an Iowa farm style quantitative analyst at heart, keep it simple and tie it to a short sound story.

Property is a positional good and mostly a commodity.  People invest in urban areas, mostly for reduced work commute times and to be around similar people.  Over a 400 year study of Dutch property, the values appreciated by effectively 0%.

Property is mostly a positional good only worth the incomes available to support it.  Over the last 80 years in the US this relationship worked out to a ratio of 3:1 for median property values to median household income. 

Beijing has some truly bubblicious prices for its 17 million citizens.  One can argue about economy, different cost of capital etc.  but it boils down to the fact that only a given amount of income can support a given amount of apartments at some ratio to price.

Beijing currently has a 27:1 Apartment to average income value. according to the  Bureau of Statistics of the Beijing Municipality. 

This simple ratio analysis applied back in 2007 predicted the $6.6 trillion loss in the US property market as it reverts to the mean 3:1 Median home value to income ratio.

If you adjust the ratios of income to average apartment value in Beijing, it would be similar to having the average apartment in Manhattan priced at around $3.4 million. 

For those who think Manhattan is expensive the average price for an apartment is $840,000. The potential drop in Beijing to a 3:1 ratio would mean a 90% price decline.  Determining the social and political implications of such a potential urban real estate scenario are for the real China Analysts.

Stop buying stocks and start buying businesses.

Business values are tied to 2 things, a competitive dynamic and perceived value by the purchaser.

Put these 2 pieces together and you end up with price.  Please note this is a little more subtle than supply and demand and the framework varies with each market.

The competitive dynamic means substitute offerings.  If a business model or offering is truly unique or has a defensible market position via geography like railroads or mental perceived value like impulse purchases of fast moving consumer product brands a firm may be able to extract higher margins. 

Many competitive environments are relatively stable with the top 3-5 players holding 50-60% of market share and dictating price via competition between them. 

It is like a horse race with most of the horses being about equal and extracting a median profit margin in the respective industry with some slight  point of differentiation.  If a horse nudges ahead with an innovation or advantage they may extract higher profits for awhile.  The duration and scope of that advantage is their competitive moat.  The moats success is measured by sustainable extra market profit margin.

Gum by gum

People paying an Extra $0.05 for a pack of $0.50 gum might just double the profits for a company in a 10% net margin business.  If you don't believe you are brand conscious ask yourself, when was the last time you bought a generic piece of gum at the counter.

This competitive dynamic of limited shelf space at the check-out counter and a relatively non-innovative space means high margins for those 4-5 firms who can dominate the 3 foot battle field by the check out counter. 

The latest innovative blister pack packaging was probably treated with serious anger when the first innovator put it in place. It meant everyone else would have to offer something competitive, spending capital and a dipping into margins until the costs were spread to the consumer at a new but accepted average price point for gum.  The first mover had an edge for awhile with the new perceived value via the packaging borrowed from the pharma industry.  Old wine into new bottles doesn't revolutionize the wine industry for long but means competitors have to keep up.

The real innovators dilemma: staying ahead

Innovators in a space have 2 challenges, they must create something new of value and be able to extract higher margins for the risks of failure.  At the same time, depending on the innovation, innovators know that in many instances they are tipping their hand to their competitors who will replicate the innovation.

These horse races produce many winners over time, mostly consumers who see each unique horse, try out innovations of product, supply chain, brand, pricing etc.  Each successful innovation leading to higher initial margins via happy paying customers gets extracted away by competitive replicators. This usually means most of the benefits end up with the consumer.  That is how capitalism typically works assuming no collusion is in place.  Positive externalities in the form of valued innovations are company led, but consumer driven.

The goal for a firm is to either have an innovation process for continuous advantage or an innovation that is so unique or protected it can't easily be replicated.  Southwest airlines has a unique corporate culture that puts out a different vibe than one would anticipate from a price led competitor.  Otherwise airlines are a horrible business with few sustained +10-15 year profitable margin firms.  No moat equals business margin misery.  Network hubs, airmiles etc.  all proved to be false profits as they were replicable.

Some businesses have geographic moats, such as the short haul rail roads. They mostly compete with trucking instead of each other.  This is an example of an asymmetric moat.  Find the key component such as fuel, unions etc. that drive the relationship and you can understand the business and potential moat better.  Most of it boils down to 2-3 key metrics. 

As an investor, I am not interested in figuring out what is "hot" for earnings next quarter, but rather what might the next 3-9 years look like. This does limit the industries one can assess and it often means skipping the sexy sectors.  High sustained margins may not always correlate with lots of media coverage.

 The fun part of investing is figuring out what the moat is for each industry and competitor.  The best businesses have multiple moats that all contribute to margin and are harder for others to replicate.  Moats come in different shapes and forms. 

A good value investor is really a good collector of mental moat models and the competitive positioning for each participant in a market.  There are really only probably 20-25 key datapoints needed to understand a marketplace and all of its participants.  Of course one needs the framework to put around the needle in the haystack. 

Most Wall Street and popular analysis is about selling more haystack.  Great ideas aren't sold by the pound.  This fact means many miss the the effective and elegant thesis for the sake of the data heap.  The nice thing about value is that often it moves slowly or the investor can choose an industry where it moves slowly.

Find the moat.  Measure the Moat for its length (time) and depth (extra margin) and then you are one step closer to understanding value in the horse race of capitalism.  Anybody can tell you price, few spend the time to understand value.

Here is the cartoon version with Warren Buffet and the Secret Millionaires club.

Real professional heroes at work: Sully and Team

Real professionals, no egos or issues, this is a team acting together for a common goal.  These guys, practice, they listen and they act professionally under the most extreme of pressures without hesitation.  Checklists also play a crucial role.  Watch one of the most moving human dramas of last year play out. I just found this on Barry ritholtz blog.

Full Disclosure, I am a flight geek: gliders, paraglider experience etc.

losses of 58% projected in NYC real estate

Losses of up to 58% predicted in NYC commercial real estate in 2011.  Article in Jan 8,2010 New York Times.

Readers of Designing Better Futures would have known about the potential for  this since Feb 4, 2009.  Article Tarp for Trump 60% declines for Manhattan Real Estate.  The decline estimates were for residential real estate which still has room to go, but the methodology is the same and the outcome will most likely be similar.

My assessments of gold and forex lead to +90% gains for some accounts in 09 and managed to return +45% on capital at risk in 07-08 combined for value based hedge fund. 

Value based investing is the core approach using multiple mental models a la Munger and Buffet with a little quant stuff for empirical testing.  Small capital was deployed. Common sense and patience seemed vital.

An experiment with high frequency trading this year was disastrous.  Maybe I am a better value and macro guy.

Sector knowledge:

• Forex
• Commodities
• FMCG
• Structured Finance &  Bond Insurance
• Telecoms
• Technology
• Renewable Energy
• Consumer services
• Broad international experience

Average performance in emerging markets can just be Mean.

The Economist had an article about Emerging markets bouncing entitled Counting their blessings.

The table to the left was presented.  Looking at it would tend to make a person believe that those emerging markets are on fire and really paid off over the last 2 years.

While a nice bounce has been had, the truth is a little less prosaic.  The fixed unit measure of a year starting on Jan 1 to Dec 31 is a cultural creation and can play tricks when we use short cuts like average annual returns (ask your fund manager about this).  While many think in yearly terms like this, few actually invest at the beginning and ending of the year.

The data as presented at first glance might lead one to believe that buying and holding for that period of 2 years would put one in a pretty fine position.

 But, there is a little something called siegels paradox which means that a gain relative to a given loss is not symmetric. This effect is amplified with volatility and kicks in significantly over a 13% loss. 

Example: If you lose 50% you need to make 100% from that point on to make it back up. 

Here is the table to the left with the arithmetic mean (average) and the Geometric mean (compounded) value presented.  Buy and hold is showing losses in 7 of the 8 markets presented for the respective period.  

Yes, there was a great bounce, but not high enough for most to be above water.  After factoring in the cost of capital at a few percentage points,  average fund management performance usually 2-4% below index and fees of 1-2% one is seriously defeated. 

Another sad fact is that almost all investors under perform the vehicles they invest in.  This can be shown in studies of money flows, where people buy high and sell low. 

My point is it ain't what you know, its what you know that just ain't so.

Genetics, Behaviour & Bullies

Wow, This is a great article in the Atlantic about the group behaviour in rhesus Monkeys and potential analogs in those big bald chatty apes we know as Homo Sapiens Sapiens "elder wise human".

The article hints about the functioning of a genetic variable and how it interacts within a social environment.

Here is the teaser video which only hints at a small part of the article.  This type of research will lead to many books and the genetic component will only loom larger as we are on the cusp of  the $1,000 genome. 

When I was helping to manage a Gene sample gathering project that was to be the World's largest, a single Genome cost about $100 million to sequence.  My estimate of the cost curve was that we would hit $1,000 by 2010.  We will probably be there in 2011, not bad analysis.

The issues mentioned in the article include:

• Violence and bullies (individual bullies often get ostracized from the group and suffer biologically due to the exclusion)
• Socialization and group conflict(some interesting narratives about conflict and the maintenance of a dominance hierarchy)
• Non-linear phase transition in group dominance  (rapid downfall after a coup for one group)
• Genetic potential realized relative to environmental factors specifically what we would call "nurturing or good mothering".

There is even hint about the fascinating Dunbar limit which I think holds one key to optimal group organization.  Great article for the anthro-socio geeks like me.  I will probably read the Atlantic article 2-3 times as it is dense and not quite scientifically conclusive in many areas, but fascinating all the less at the hints it gives to future questions in regards the role of genes, culture and environmental determinism in the face of genetic potentials expressed. 

Recent interview with the Wall Street Cheat Sheet

I was recently interviewed by the Wall Street Post Game in regards, to thoughts on the hedge fund industry going forward.  I have watched hedge funds for 20 years and of course have opinions some wrong, some right, but all free ;)  Read the interview here.

living to be 100: National Geographic research and video TED Talk

Get your Wile E. Coyote on with a personal jet

 I am a bit of a flight geek.  My mom used to teach flying and was rated up to multi-engine class, she also owned and flew a hot air balloon. 

My grandfather started flying gliders when he lived in New Delhi, India and subsequently taught my brother and I how to fly at age 15 in Iowa.

I have flown in micro-lights and even learned how to fly paragliders off the cost of England on the Isle of Wight.

So here is the mid-life crisis toy that seem like it needs to be checked out.  The home-built micro jet, it even sounds like something Wile E. Coyote would own.  The full article is at Wired Magazine.

Web 2.0 vs. Corruption

One of the most debilitating factors in economic development is corruption.  Corruption not only soaks up the efficient allocation of resources, but also shrinks investment horizons to near zero.  Why invest in education for your family or children if corruption means jobs are not based on merit.  Why invest in building a home or business if they can be taken.  Endemic corruption and poverty go hand in hand.  For some reason I have a strong visceral reaction to corruption, something about the Iowan in me. 

Having traveled a bit and spent time in the 3rd world, I have witnessed the costs direct and indirect of corruption.  I studied economic development in university as a focus of my anthropology degree. Here is a good academic papers on how corruption impacts people far beyond the bribe paid.  Here is one involving roads from the IMF.

Many assume corruption to be a 3rd world or poor phenomenon.  It isn't. Here is a list of countries ranked from the very credible Transparency International Survey.  The US made it to 19th place this year as the least corrupt place. 

Studying economic development is important.  The US is currently undergoing massive Economic Stimulus across sectors and industries yet, I have yet to hear of a single case of reaching into development studies that may offer lessons as to what works or doesn't. 

Corruption costs big time.  Land use, and registration is one of the things that gets hindered by corruption and is a point of interest for me.  It is a $9.9 trillion problem mostly affecting the developing world.

The Good News is Feedback

Better process design and feedback loops typically resolve corruption.  Investigative journalism, public feedback, freedom of information acts etc.  all aid in this.  These tools if available and functioning are effective unless corruption goes to the top of the political structure. 

The bad news is that if corruption goes all the way up, as in Russia it won't go away until leadership changes.

Here is a video highlighting the nature of Russia's problem. Poverty and corruption are highly correlated. Although a specious argument Russian male life expectancy of 59 years which puts it at #182 out of 227 countries is probably not helped by the issue.  Corruption and its economic burdens costs the average Russian citizen a lot.

So what can You do with your spare time to help out.

Check out these websites and see if there is something you could do.  If you have spare time and skills this would look pretty sharp on a resume.  Creating tools that make things better is pretty powerful stuff.

These are US sites, but a quick google search should bring up other projects in various countries and regions:

• Sunlight Labs
• Expert Labs
• Property law wiki (just an idea at this point from me)

It is starting to work in the developing world.

Here is a video from TED about a person who wants make a business out of fighting corruption.  The positive externalities from this would huge.

The Height of Folly & the Skyscraper index.

The Skyscraper index has been around since 1930 according to Wikipedia.

The concept is that skyscrapers are a contrary indicator.

I find these indicators interesting but mostly anecdotal. 

My own thesis is that economies and markets for various goods and services have normally bounded rates of growth or decline due to competitive and feedback dynamics.  I am working on a project to model these.

Extreme variance from the normal rate of change may sometimes be indicative of a future reversion to the mean. 

The extreme growth of banking as a function of GDP in the US is one example.  Here is a good paper looking at banking as a % of GDP since 1860.

The extreme variance of median income versus median home value in the US is another example.

Technology, finance and un-shakeable faith in the future all coalesce into magnificent projects and works which transcend commercial sensibility, they are collective dreams writ in stone, steel and glass.

The recent opening of the Burj Khalifa tower in Dubai is the latest example of this.  

For those wishing a deeper dive on the Skyscraper index the 2005 paper which was the source of the image above is here: "Skyscrapers and Business Cycles". The Quarterly Journal of Austrian Economics 8 (1): 51–74.

My guess is that the Great Pyramid in Egypt, the Mayan pyramids and other peaks, monuments and temples or civic structures in civilizations probably coincided with bubbles as well. 

At least with skyscrapers, there are some tangible relics for anthropologists to admire later, much more interesting than say the South Sea Bubble, which mostly created paper and frustration.  Let face it, if a bubble has to have economically non-viable externalities, buildings sure beat sock puppets.

The next big towers going up are in China in 2012 and Korea in 2014.  Get ready to set your economic stimulators to full stun.

Full disclosure:  I am an architecture, archaeology and design fan so probably lack full economic objectivity in this area and willingly look up and cheer on the dreamers while clutching my own wallet firmly on the ground.

Pro globalisation via the BBC

All though not fashionable, here is a helpful video that offers some support for globalization and business as a potential force for good.  The arguments for or against business are often shouted, lacking the nuance and listening found in good debate.  Many rarely consider global sources as legitimate voices for global issues, preferring convenient sound bite loaded local media outlets which may merely amplify opinions already held.

This video hints at the importance of property rights, free trade and other vital components in development.

This video puts forth a few helpful pro-arguments for pro-globalisers.  Whether you are pro or anti globalization, educating oneself makes the debate more interesting than partisan rhetoric. 

A good debater who has deeply considered an issue can articulate arguments on behalf of both sides of an issue, it also makes for more interesting conversation.