Apr 10

I started this blog in August, 2007. Before that, I was writing a monthly article that appeared on a static web page that I designed by hand. Not pretty, really. When I flipped to this format, the old pages still existed on the server but not tied in to this site. It’s time I migrated some of the better articles to here, and clean up my server. This is the first of about a dozen articles I plan to move over the coming months. Let’s see which articles stood the test of time and which are showing their age. We start with a book review of Zvi Bodie’s Worry Free Investing.

I’ve read the book and wanted to share my thoughts.First, here is the link which provides a downloadable spreadsheet. The first assumption is that the TIPS (he switches between TIPS and iBonds, I won’t object as they are similar in that both are linked to the CPI) have a 3% return. This means 3% plus whatever CPI is running. He also assumes a replacement rate of 70% is the goal, as social security will provide some, and 100% isn’t the target as one doesn’t have to save ‘for’ retirement while retired. No arguments there from me either. The sheet comes up assuming that one starts saving at 35, retires at 65, and dies at 85. A savings rate of 21% is needed to accomplish this. I think 90 is more realistic, the rate has to jump to 24%. Start saving at 25, the rate drops to below 16%. I’d be great with this, only a visit to treasury direct shows that the current rate on iBonds is 1.4%. (note – as of April, 2013, the rate is zero) The real return has dropped by half. Leave the changes I made above (start at 25, live to 90) and the required savings rate shoots back up to 27%.

Had I read the book in 2003 and been sold on this plan, from a savings rate of 16% (which I wouldn’t worry about), I’d find, that as the real rates dropped, the new bonds I purchased would require a saving rate over 27%. This is worry-free?
I appreciated his anecdotes of the people who were on the verge of retiring to then meet up with the crash of 2000-2. And the Enron widow. These stories only reinforced my belief that much planning is needed in those final years, but he suggests that no amount of diversification will protect an investor from a long term bear market. I’m not convinced either way, but I still lean toward the 5-6 years of spending in bonds or cash equivalent, and the rest diversified among stocks, local and foreign.
I wonder if he’s changed some of his advice given that the real return on his suggested investment vehicle has dropped by over half.
He also contradicts “Stocks for the Long Run” stating that there is no ‘safe’ investing horizon for an investment in stocks. In the end I find this author to be misguided at best, and likely dangerous to your financial well being. You should save yourself the two hours and read other books from my list.

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May 10

This book makes the remarkable case for a future in which the current level of poverty at the low end is virtually eliminated. I continue to be stunned by the data at Globalrichlist.com which shows that half the world lives on less than $850 per year. It doesn’t take much in the way of improvement to double and redouble their standard of living. I’ll offer a few observations from my reading of Abundance as to how the world may change over the next decades.

The larger issue for the poorest of this world is the lack of clean drinking water. Authors Peter Diamandis and Steven Kotler describe the large number of person-hours spent each day simply fetching water which isn’t always of good drinking quality. Dean Kamen, inventor of the Segway is currently working on a water purification device which can be powered from virtually any source of power and will produce 250 gallons of water per day, enough for 100 people. His target cost for this machine is sub $2000.  Even if you focus on the fact that the target market for these machines are making less than $10 per week, this one time expense of $20 per person will free up many hours of family time from the whole water fetching process. Add more of these systems and the issue of clean water for one’s crops start to be a non-issue.

The other technology that holds great promise continues to be solar power. For the parts of the world where there is no “grid,” it’s possible there may never be one. Just as there are parts of the world that skipped right over providing phone lines all over the place, instead just putting up cell towers, solar may be the next step in bringing electricity to the world. Where burning kerosene lamps is expensive, dangerous, and unhealthy, solar power can charge storage cells to extend the daylight into early evening, provide power for computers, and bring up the education level of the world’s poor. There is a direct correlation between improvements in education and health and the reduction in overpopulation. This book makes a great case for the potential to wipe out the pervasive global poverty within the next two generations.

Abundance runs 240 pages, and then another 100 of notes and references. It does an interesting job of projecting based on current science and the rate of progress we are experiencing. It borrows from, and complements my recolewction of Ray Kurzwell’s The Singularity is Near, another good read.

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Jul 21

The news is out that Borders book store is no longer. As I consider this, I wonder if it’s a sign that books are going the way of the 8-track, cassette, LP, and VHS tape. Or is it an indication that book stored were meant to be independent stores, the neighborhood book store that still seems to be out there but in fewer numbers over the decades. I Google “book store” and up pops nearly a dozen local shops, all closer than my Borders location that will close soon. Maybe Boarders closing will give these stores a bit of a second wind, as I’ll probably stop in them a bit more often. There’s a bigger question, however, as Amazon reported sales of eBooks passed sales of physical books not too long ago, are printed books going the way of the dinosaur? Does it matter? Is there more to a book than the words it contains? As the Kindle commercial mocks, is there something about the feel of a book in your hands, the ability to dog-ear a page and perhaps even write in the margins or highlight some text you’d like to review?

On the other hand, is there a benefit that goes beyond paper in being able to hyperlink words in an eBook, to pull up a definition of an obscure word, or to link to an article that goes into greater detail on the topic? An eBook will also let you search for a word or phrase in seconds while the physical book make take a lot of flipping to find the passage you seek.

Garrison Keillor recently wrote an article titled ‘The end of an era in publishing.” It’s not eBooks that bother him, but rather the barrier to entry is gone. He pines not just for the typewriter, but for the days of a publisher that had to read your work and accept it. Today, whether it be a print-on-demand or eBook, anyone can write what they wish and offer their work to the public.

I find myself torn. I’m not ready to cut loose from paper altogether, but I do appreciate the convenience and compactness of the electronic book.
Are you giving up paper? Have you gone 100% electronic or are you still deciding between physical and virtual?

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Sep 15

I recently read and enjoyed Super Freakonomics. The book was a worthy sequel to its predecessor, of course, titled Freakonomics.  Unlike most other books I’ve read, it’s tough to put in a few words what the underlying theme of this book is.

Instead, I’ll offer my take on a few of the anecdotes the book presents, and not assume that you are familiar with either the original book or the co-authors and their work.

Global Warming, not. If there is such a thing, its source isn’t any of the energy related fuels that are routinely blamed. Instead, it’s cows and the methane they produce. Increasing wealth across the world had shifted the demand from grain to meat and this shift is ultimately the cause. The Mount Pinatubo eruption? It actually helped cool the planet a bit, negating nearly a hundred years worth of observed warming. (I am not saying I agree with their conclusions, just sharing them. A number of scientists have spoken again these claims.)

Next, there is a discussion of suicide bombers and the criteria that one would use to discover them in a large population. Unfortunately, even a 1/10 of 1% false positive means that when analyzing a group of say 100,000 suspects, there will be 100 innocent people who are falsely accused. One factor in the data mining is that suicide bombers don’t buy life insurance, at least not until this book was published.

You drink just a bit too much at a party, and live just a mile or so from home, do you walk or drive? We are offered data that suggests it may be safer for you to drive, as you may have a lower chance of injury per drunk mile driven vs walked. (Disclaimer – Don’t do either. Get a ride from a sober person or call a cab.)

Last, a look at the impact of The Club (a metal anti-theft device that goes across a car steering wheel) vs LoJack (a hidden transmitter used to track a car after it’s stolen) and how the visible Club effectively says to move on to the next car, while LoJack has every thief wonder which cars are protected. Interesting way of comparing these two anti-theft devices.

You see, the chapters within the book skip from one seemingly unrelated topic to the next but still maintains an overall feel. Sort of an economist looking at the world through some strange glasses  and sharing his observations. Have you read this book, or the original? What did you think of them?


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Aug 16

The Upside of Irrationality, The Unexpected Benefits of Defying Logic at Work and at Home, is the sequel to Dan Ariely’s Predictably Irrational, which I discussed in June.

I have to say, I enjoyed Dan’s first book enough that I had pretty high hopes for the sequel, and I was not disappointed. Similar to Predictably Irrational, we are walked through a series of experiments that offer a view as to how we approach certain decisions and how we are motivated.

One experiment we are offered is to try to understand the connection between payment and performance. The assumption of “pay for performance” may be more theory than reality it would seem, as one experiment which upped the ante on some simple tasks to a level of three weeks pay for only an hour’s work showed that the pressure of higher potential earnings actually decreased performance. As budgets for academic studies of this nature tend to be limited, this experiment was conducted in India, where the wages were lower than in the US.

In another example, we are introduced to the demotivation that follows work that’s discarded. For the experiment, people are paid to assemble a lego structure, one after the next. The demotivation came as for one group of builders, their structure was taken apart right in front of them. For those who saw their creation kept in tact, they worked longer and were happier doing so. This may seem ridiculous, but I’ve witnessed real life examples. Engineers whose designs were completed, on time, under budget, fully functional, yet, for whatever reason, found their project canceled. Such engineers don’t last long at companies that don’t value their work.

These two examples I offered are also discussed in an interview with NPR’s Robert Siegel in his interview with Dan Ariely, Exploring The ‘Upside Of Irrationality‘. You can listen to the interview or read the transcript, as you wish.

I’d also like to mention that Dan Ariely has a blog in which he stays pretty active, conducts experiments, and offers links to his videos. A great site to explore the topics introduced by these books.

FTC disclaimer – I borrowed this book from my library and was not compensated for this article.


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