Investing There are two schools of thought on investing as a college student. One says that because your current income is low and your future income is high, spend money now because you're going to make more later. The other says that the earlier you start investing, the higher your return will be in the future, because with compounding and exponential growth, you make the majority of the return in the last periods of investment. I take a middle road; I save when I can but I spend a large chunk of my money. The preponderance of information on the internet likens investing to gambling. Get this straight: If someone has a proven, mathematically rigorous method for beating the stock market, they will not tell you about it. It would be like Coke giving away its formula or KFC giving up its chicken recipe. If you have a good tip, and you tell other people, they'll bid up the price until it's no longer a valuable tip. The repercussion is simple: all financial advice telling you about ways you can beat the market is complete and utter bullshit. All of the advice sounds really good; we love gambling, we love new ways to gamble and we love thinking that we have a foolproof strategy. But the only people that make money off of this advice are the givers and the market makers. I'll explain why in a little bit. I make a small exception for people who are giving advice based on how they have their own money invested; at least if they're wrong, they're losing money too. For example, Warren Buffett's letter to shareholders, where he discusses how his company is invested in light of the current market climate. I got the following in my email box recently, from an online trading company:

Here are a few reasons we think you’ll find forex trading interesting: Large and Liquid Market Forex is the most traded market in the world, with a daily volume exceeding $3.2 trillion, according to the Bank for International Settlements (BIS).  Alternative Asset Class Zecco Forex provides access to another asset class where you can make trades independent of overall equity market direction. So if the Dow is plummeting, the dollar could be rallying. And if the dollar is plummeting against the Euro, you might decide to jump on the Euro and ride that wave.  Leverage You can get up to 200 to 1 leverage trading foreign currencies. That means $500 cash can purchase up to $100,000 in currencies (my note: and a 2 percent loss will not only wipe out your $500 investment, but leave you owing a further $1500!). Now before you go investing your kid's college funds in currencies, you should recognize that a high degree of leverage can lead to large losses as well as gains. As with any other investment, you should only risk what you can afford to lose.  Technical We believe forex trading will be very attractive to active and technical traders. With a multitude of trading opportunities, and a full array of technical strategies, we believe you will find this market worth trading. And because we’re Zecco, you’ll get some of the tightest bid-ask spreads in the business. 

Every transaction has two sides; a buyer and a seller - someone who thinks the stock's going up and someone who thinks it's going down. If you don't think you know more than the other party (an institutional investor, a hedge fund trader, a math Ph.D in the basement at Goldman Sachs), don't trade. Note how much the email compares this to gambling - they cover every possible investor, from the guy who wants to "ride that Euro wave" to the one with "a full array of technical strategies."   A simplified story of how to invest money: Let's say you're at the horse races for the day, at a special horse track called "Dow Jones Fields." Normally, a horse track will post odds, collect everyone's money, remove a 15% cut and then pay out the remaining 85% to the winners - this is called parimutuel betting, because your winnings are funded by your fellow man's loss. Because this is a special track, the return varies - some races, the owners remove 20% of the money pool, some races they put in 30%, and over every race at the track we know that on average, at the end of the day, the owners (Mr. and Mrs. Profits) pitch in four or five percent to the total pool, so there's more money out than went in. Given that this is a racing track, there are lots of individual horses, each with a different record, a different jockey, different starting gate, different odds etc. In addition each horse at this track has qualities called "Beta" and "P/E Ratio" and "Projected Analyst Earnings." We have a pocket full of cash and three possibilities: we can earn below 4-5% return, we can earn exactly 4-5% return, or we can try to beat the market. Three levels up, you can see a bunch of guys in suits and sunglasses making bets. They're trained in horse betting, and make their living making money at the tracks. They're your competition. Now, the surefire way to lose a lot of money is to look at which horses have been winning, figure out who their jockeys are, what their betas are, and what their odds are, and then bet those horses in future races. As humans, we're more than capable of making patterns out of random data. This is exactly what we do when we gamble: in roulette, bet on a "hot" number, or whatever. We could try to bet on the "hot" horses. And we might get lucky and win but odds are we're going to lose, or at least earn less than 4-5%, because of the guys in the suits at the top who know everything and make bets for a living. The best thing to do is to bet every single horse in every single race. This way you guarantee you'll get the market return. Now in an individual race you may be way up or way down depending on how big the pool is. But we more or less know in the long run things are going to be positive.

Liked what you read? I am available for hire.

I read this Sports Illustrated article about Findlay Prep, the "school" set up by a UNLV booster for top young players. They live together in a house with plasma-screen TV's, equipment, food and furniture all paid for by the booster. Spoiling young athletes seems ridiculous at first glance, because it seems like it's circumventing the rules that everyone else plays by, but the spoiling is a consequence of a system where the players are not allowed to be paid directly until they graduate or leave college. It's silly that we force top athletes to go through the farce of high school and college classes, with the idea that they are "students first," as all those silly NCAA commercials remind us, who happen to be extremely talented at sports. In sports the normal economic relationship between Europe and the USA is reversed; European players enjoy contractual freedom, while the American system limits players freedom to earn market wages and play for the teams that they want to. In Europe, the best young players live full time at sports academies, where they take some classes but spend most of their time training and practicing. Top clubs often sign and recruit players at young ages; compensation and contract length for players under the age of 16 is limited. Manchester United recently made headlines for signing a 9-year old, but it's pretty common practice in England - the United spokesman said "the club signs about 40 players of Davis's age every year and, as is standard, will decide annually whether to renew his contract or release him." Furthermore, there's no such thing as a draft - players sign contracts with teams. Contracts can be bought or sold but player trades are rare (I've wondered why this system hasn't caught on in the US - paying cash for players means you can express their value more directly, rather than through the players on your team). Universities field teams, but their players are drawn from the student body - "recruiting" is a little outdated when pro teams can and do pay wages to players directly. But instead of actually compensating young players for their current and future value to the teams they play for, colleges go through an elaborate courting process, recruiting, and pro teams gather every June to take turns drafting players - for the first time they'll be able to earn money playing basketball, but they get no say in where they can play. So I believe the academy system makes more sense - top players can focus on basketball, and universities can admit more qualified students.

Liked what you read? I am available for hire.

In no particular order: 1) Government intervention tends to have negative consequences for society as a whole. 2) The best predictor of what will happen next time is often what happened last time. 3) Heuristics (knowing too much) tend to make us worse predictors. The classic example of this is the study where German students were asked whether San Diego or San Antonio is bigger. I'm not convinced about that one statistic proving a general rule, but I'm convinced about the rule. 4) Over time, we'll become less mad about people who have aggrieved us. We'll also recover from the loss of loved ones. 5) We will change our minds; conclusions ("leverage is a bad idea") will seem obvious, even though they weren't at the time. 6) One of my favorite movie scenes is in American Beauty, when Ricky asks his dad, "Whats going on in the world, Dad?" and Chris Cooper puts down his newspaper and says "Son, this country's going straight to hell." I feel like people have always said this and will always continue to say it. In my worst liberal days in high school I believed it. The world tends to do all right though. 7) If someone practices a particular skill, with persistence and deliberate feedback, after a while they'll improve.

Liked what you read? I am available for hire.

This tournament has had fewer upsets than any tournament up to this point - all of the top 12 seeds advanced, as well as two #4 seeds and a #5 seed. Note that if you want to have all of the higher seeds advance you'd make the difference between seeds constant in the bracket, not the sum of the seeds of the teams playing. Right now the second round is 1 vs. 8, 2 vs. 7, 3 vs. 6 etc. - all of these games sum to 9. But if you wanted the higher seeds to all win, you'd have 1 vs. 5, 2 vs. 6, and 4 vs. 8 - a constant difference of 4 seeds. The committee could accomplish this by mistake by making the 7 and 8 seeds stronger and the 5 and the 6 seeds weaker, although I don't see evidence that they did this. The NCAA Tournament is bound to have good games, it's just a matter of when - a lot of upsets in the first weekend means that the second weekend will have the top seeds sweeping up in the second weekend. I'm hoping the games this weekend are excellent.

Liked what you read? I am available for hire.

$165 million is about 50 cents for every man, woman and child in the USA. $170 billion is $500 for every man, woman and child. We just don't have the mental tools to grasp these sorts of numbers.

Liked what you read? I am available for hire.

Today Bernard Madoff plead guilty to eleven charges of fraud. He said he never invested the money, instead he placed it in a Chase Manhattan account and paid clients out of that. So, maybe when clients withdrew money you paid them with a fraction of what later clients gave you. And you're getting close to zero return, as opposed to the constant single digit return Madoff's clients were allegedly receiving. But most of the money should still be there; if it was put in the bank as he said. Madoff made these statements today in front of a judge, which puts a higher price on a lie. By all accounts Madoff was not a flashy guy. Rich but not flashy; perhaps he spent $1 billion of the $50 billion investment on himself and his family. So what happened to the money? Were the initial investors repaid in full? Is it right to take money from them and distribute it evenly among Madoff's clients?

Liked what you read? I am available for hire.

Here are two stories from the Book of Judges.

Judges, Chapter 19: A Levite and his concubine are traveling in a strange country. An old man in Gibeah, a town of Israelites, offers them shelter for the night. A mob comes upon the house and demands the housekeeper give up the Levite, so that they can sodomize and rape him. Just like the story of Lot, the old man offers his virgin daughter first, but this doesn't get the mob's goat, so the Levite offers his concubine. This time there's no intervention from God or angels, and the mob takes the concubine and rapes her all night long. The Levite awakes in the morning to find his concubine "fallen down" at the door of the house. He says "Up, and let us be going." She dies, so he props her body on the back of an ass for the ride home. Upon reaching home, he cuts her body into twelve pieces and sends "her into all the coasts of Israel," so that they'll want to get revenge too. Chapter 20 details the revenge against the offending tribe.

Why is this story in the Bible? What lesson are we supposed to take from this story (or in the words of our professor, how shoud one write a midrash about this story)? This is eight chapters after Judges 11, similar to the Abraham-Isaac story, except in this chapter the father actually sacrifices his child.

For more on the Bible read David Plotz's excellent series for Slate.

Liked what you read? I am available for hire.

Here's a look at futures contracts on house prices, in today's NYT:

Here's a look at house prices divided by median family income:

I'm short housing futures...

Hat tip in both cases to Big Picture.

Liked what you read? I am available for hire.

Public trusts spend a lot of time and money trying to get us to change our behavior with regard to smoking, gambling, drunk driving and other vices. I believe that most of these ads are ineffective, because they don't frame the issue in a way that people can relate.

Most people think of themselves as moral, upstanding citizens, the same way most people think that they are above average in attractiveness, intelligence, driving skill and other categories. It's good for our mental health that we think of ourselves in a positive way.

The problem with drunk driving ads and DARE programs, etc. is that they present drunk driving as a good vs. evil narrative. But when most people think of themselves as good then they reject the ads as not addressed to them, addressed to other "evil" drunk drivers. The chain of logic becomes, "I'm a good person --> Good people don't endanger other people's lives, get arrested, or kill people in their cars --> This ad is not for me." No one drives drunk with the intention of

Furthermore, the ads are preach to us when we're sober. Just as no one plans on becoming a murderer, I'm not sure people plan on becoming drunk drivers. Dan Ariely has a chapter in his book, Predictably Irrational, about how people's responses to questions about their sexual preferences change when they are aroused vs. when they are in a neutral setting. They become so much more willing to engage in risky sexual activity that talking to an aroused person is like talking to a completely different person than the sober one. We can say the same thing about drunk people. We're preaching to the sober choir; everyone's against drunk driving when they're sober. But God help us when people get wasted.

I think ads need to stress that all of us are potential drunk drivers. We need to take steps to make sure that we make the right decision even when we're under pressure. Consider the following scenarios.

• You're driving on the Bay Bridge into San Francisco. The plan is to go bar hopping with a high school friend, and then sleep on the couch in his apartment. After four or five drinks, the conversation's flowing and you head to the bathroom, while waiting in line you start talking to an attractive girl who's waiting for the ladies room. She seems pretty interested, and mentions that she and a few friends are leaving for a club, would you like to join. So you head to the dance club and start dancing with this love interest. Your high school friend, bored, wanders off to try his luck elsewhere in the club. After about an hour of dancing and laughing you ask if she wants to take the party elsewhere. She resists at the last minute - mentioning that she doesn't want to leave her friends, she just met you, etc. Bummed, you go to find your friend. But he's nowhere in sight, and you look down and see that your phone's dead. The phone had his address and number saved in it. So now you are alone in the city at 2AM with nowhere to sleep and no way to get in touch with your friend.
• You're celebrating a friend's birthday on a Wednesday night. Everyone gets completely plastered, stays up till 4AM and spends the night at his house. You wake up at 8 AM to go to work, and on the way to the bathroom realize that you're still wasted. But you just got hired for this job two months ago.
• You drove to a bar in the suburbs. You start talking to an attractive girl sitting at the bar, and things are going well. She's playing with her hair, you're both smiling and laughing, you put your hand on her knee, and as the drinks pile up you are falling deeper and deeper in drunk love. You haven't had sex in six months, so you're pretty excited and anxious to seal the deal. Now it's time to go; you had your last drink an hour ago. If the two of you took a cab you'd have to wait twenty minutes, pay a large fare and get someone to drive you back to the bar in the morning.
• It's Saturday night and you're at a house party, shotgunning beers, playing pong, taking shots, singing Journey and having a good time. Plenty of your friends are there, but also a lot of people that you don't know. You're in the kitchen talking to friends when you hear your ex girlfriend make a loud entrance, saying hi to friends. "Fuck," you say - now it will be harder to have a good time. At least by this point in the night you have a good buzz going. The night progresses and you see your ex deep in conversation with a guy of marginal quality. You're angry that she's displaying such bad taste. So you go outside to hang out in the hot tub, down in the basement to smoke, or upstairs to listen to Jimi Hendrix, for about an hour. You stumble back to the main room, where the lights are out and nearly everyone's passed out, and ask where your ex went - the answer is in a bedroom, with that guy. You're furious, and more angry because there's nothing you can do. All of the couches and beds are filled with sleeping bodies, you have your keys and your house is the next exit down on the freeway.

My goal here is to make the viewer understand the situations in which people drive drunk, and the situations they could be in in the future that would lead them to drink and drive. Drunk drivers are not "evil" people; they're people trying to get home, get to work, or get to a friends' house. The problem is that when people drive drunk they endanger themselves and the people around them.

I am not trying to justify drunk driving. I just think that the ads that are supposed to change our habits don't do a very good job, because they don't take into account the banal circumstances that lead people to drink and drive.

Liked what you read? I am available for hire.

Fiddling around with this chart of unemployment, I noticed that West Virginia has a large white patch - low unemployment and few layoffs, indeed job growth in some areas, in the past year, while the area surrounding it has higher unemployment.

The state's personal tax burden is slightly above average and it ranks 36th in corporate tax climate, so it's not necessarily employer friendly.

My first thought was that Robert Byrd's legacy was helping the state - it has a large number of federal and government employees, and government is one of the few areas still hiring today. But that's not the case - government employment only rose at a 1% rate last year. West Virginia has one of the lowest median incomes of any region, so keeping people employed is not as expensive as in other regions. In addition, workers compensation is pooled and paid by the state, not by firms.Furthermore, the coal industry has done well, adding workers at an 8% rate while the other private fields shed workers. The state has also spent responsibly, paying down liabilities when they had surpluses.

So pack up everything and move to the Mountain State! Or not.

Liked what you read? I am available for hire.