Month: February 2012

Remembering Anthony Shadid

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It is with great sadness that I learned of Anthony Shadid’s death yesterday. He was an intrepid, extraordinary reporter for publications such as The Washington Post and The New York Times. He won the Pulitzer Prize for international reporting twice: in 2004 for his coverage of the United States invasion of Iraq and the occupation that followed and in 2010 for his coverage of Iraq as the United States began its withdrawal.

His obituary in The New York Times appears here, but I wanted to highlight pieces about/by him below, all of which are a must-read:

1) “Libya Struggles to Curb Militias as Chaos Grows” [The New York Times; published February 2012] — the last piece Shadid filed for The New York Times.

2) “Syria’s Sons of No One” [The New York Times; published: August 2011]

3) “4 Times Journalists Held Captive in Libya Faced Days of Brutality” [The New York Times; published March 2011]

All of us had had close calls over the years. Lynsey was kidnapped in Falluja, Iraq, in 2004; Steve in Afghanistan in 2009. Tyler had more scrapes than he could count, from Chechnya to Sudan, and Anthony was shot in the back in 2002 by a man he believed to be an Israeli soldier. At that moment, though, none of us thought we were going to live. Steve tried to keep eye contact until they pulled the trigger. The rest of us felt the powerlessness of resignation. You feel empty when you know that it’s almost over.

They bound our hands and legs instead — with wire, fabric or cable. Lynsey was carried to a Toyota pickup, where she was punched in the face. Steve and Tyler were hit, and Anthony was headbutted.

Even that Tuesday, a pattern had begun to emerge. The beating was always fiercest in the first few minutes, an aggressiveness that Colonel Qaddafi’s bizarre and twisted four decades of rule inculcated in a society that feels disfigured. It didn’t matter that we were bound, or that Lynsey was a woman.

4) “What He Knew” [Columbia Journalism Review; published November 2011]

5) “A Boy Who Was ‘Like a Flower'” [The Washington Post; published March 2003]

He will be missed.

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Update (2/18/2012): The New York Times has an excellent tribute to Anthony Shadid here. Turns out, Shadid filed another piece for the paper just before his death. It was published posthumously by The Times today.

Testing the Boeing 787 Dreamliner

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The new Boeing 787 Dreamliner is supposed to revolutionize air travel. It promises a better cabin climate, less airsickness, reduced jet lag, fewer headaches…and even babies that may not cry as much. The Wall Street Journal put these claims to the test in a recent flight from Tokyo to Frankfurt.

Boeing points to design changes both inside and out of the cabin that make for a better ride. With a body largely constructed of super-strong plastics—carbon-fiber composite material—instead of aluminum, the 787 can have higher cabin humidity since rust isn’t a worry. The humidity level in the Dreamliner cabin is 10% to 15%, compared with 4% to 7% typical in other airplanes. But 15% is still extremely dry—about the same relative humidity as the average summer afternoon in Las Vegas, according to meteorological data.

The cabin is pressurized to a lower altitude than conventional jets, lessening the effects of being high in the air, such as headaches and fatigue, because of a 6% improvement in oxygen absorbed by the body at 6,000 feet compared with 8,000 feet. Studies show big windows help reduce motion sickness, Boeing said, and LED lighting that can simulate sunrise, for example, can help ease jet-lag effects.

A new aircraft stability system that will make for smoother rides in turbulence is still only partially functional in the five 787s in service, but an updated software load planned within weeks will improve the ride even more, according to the aircraft maker. Fuel efficiency and emissions are 20% better than the Boeing 767, a similarly sized jet.

And the personal takeaways from Scott McCartney, the author of the WSJ piece:

I flew from Tokyo to Frankfurt on Feb. 3 and could feel the Dreamliner differences. My contact lenses didn’t dry out as much as they usually do on long flights; same for my nose. I only slept an hour, partly because a nearby infant wailed several times during the night, even though the Dreamliner is supposed to lessen air-pressure pain in babies. Still, I wasn’t dragging as much as I usually am after sleepless overnight trips.

Small details do make a difference. The plane comes standard with individual air vents over passengers, something that is rarely found on wide-body jets. That gives each passenger more control of air flow and temperature. And the large 787 window offered a beautiful panoramic view of Tokyo on departure.

The Dreamliner ranks as the fastest-selling commercial jet in history, with 59 airlines around the world ordering 870 of them. The Dreamliner should start appearing at U.S. airports later this year.

Tim Cook on the Apple Culture

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Earlier this week, the CEO of Apple, Tim Cook, spoke at a conference put on by Goldman Sachs. For his final question during the the Q&A session, Cook was asked how his leadership might change Apple, and what aspects of the culture he might try to preserve. Here’s what he had to say:

Apple is a unique culture and unique company. You can’t replicate it. I’m not going to witness or permit the slow undoing of it. I believe in it so deeply.

Steve grilled in all of us, over many years, that the company should revolve around great products. We should stay extremely focused on a few things, rather than try to do so many that we did nothing well. We should only go into markets where we can make a significant contribution to society, not just sell a lot of products.

These things, along with keeping excellence as an expectation of everything at Apple. These are the things that I focus on because I think those are the things that make Apple a magical place that really smart people want to work in and do, not just their life’s work, but their life’s best work.

And so we’re always focused on the future. We don’t sit and think about how great things were yesterday. I love that trait because I think it’s the thing that drives us all forward. Those are the things I’m holding onto. It’s a privelege to be a part of it.

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(via Dustin Curtis; full audio here)

Equity and the Banking System

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Writing in London Review of Books, Andrew Haldane provides a brief history of banking (with emphasis on the U.K. banks) and considers the too-big-to-fail conundrum:

Consider the effects of the too-big-to-fail problem on risk-taking incentives. If banks know they will be bailed out, those holding their debt will be less likely to price the risk of failure for themselves. Debtor discipline will therefore be weakest among those institutions where society would wish it to be strongest. This encourages them to grow larger still: the leverage cycle isn’t merely repeated, but amplified. The doom loop grows larger. The biggest banks effectively benefit from a disguised, and growing, state subsidy. By my estimate, for UK banks this subsidy amounts to tens of billions of pounds per year and has often stretched to hundreds of billions. Few UK government spending departments have budgets this big. For the global banks, the subsidy can reach a trillion dollars – about eight times the annual global development budget.

We have arrived at a situation in which the ownership and control of banks is typically vested in agents representing small slivers of the balance sheet, but operating with socially sub-optimal risk-taking incentives. It is clear who the losers have been in the present crisis. But who are the beneficiaries? Short-term investors for one. More than anyone else, they benefit from a bumpy ride. If their timing is right, short-term investors can win on both the upswings (by buying) and the downswings (by short-selling) in financial prices. Bank shareholding has become increasingly short‑term over recent years. Average holding periods for US and UK banks’ shares fell from around three years in 1998 to around three months by 2008.

Bank managers have benefited too. In joint-stock banking, ownership and control are distinct. That means managers may not always do what their owners wish. They may seek to feather their own nests by making decisions that boost short-term profits and thereby justify an increase in their own pay. Such decisions may also increase banks’ vulnerability to shocks. In an attempt to avoid this problem, shareholders have sought to align managerial incentives with their own. One way of doing that, increasingly popular over the past decade, has been to remunerate managers not in cash but in equity or using equity‑based metrics. This can generate hugely powerful pecuniary incentives for managers to act in the interests of shareholders. At the peak of the boom, the wealth of the average US bank CEO increased by $24 for every $1000 created for shareholders. They earned $1 million for every 1 per cent rise in the value of their bank. But such equity-based contracts also set up some peculiar risk incentives. In the 19th century, managers monitored shareholders who monitored managers; in the 21st, managers egged on shareholders who egged on managers. The results have been entirely predictable. Before the crisis, the top five equity stakes were held by the CEOs of the following US banks: Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley and Countrywide. We know how these disaster movies ended.

The evolution of banking as I have described it has satisfied the immediate demands of shareholders and managers, but has short-changed everyone else. There is a compelling case for policy intervention. The best proposals for reform are those which aim to reshape risk-taking incentives on a durable basis. Perhaps the most obvious way to tackle shareholder-led incentive problems is to increase banks’ equity capital base. This directly reduces their leverage and therefore the scale of the risks they can take. And it increases banks’ capacity to absorb losses, reducing the need for taxpayer intervention. Over the past few years, this case has been pushed by regulatory reformers. Under the so‑called Basel III agreements struck in 2010, banks’ minimum equity capital ratios will rise fivefold over the next decade, from 2 per cent to close to 10 per cent of assets for the largest global banks. That is a significant shift. Will it be enough?

 

On Harvard and Wall Street

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Why do so many Harvard students end up going into finance upon graduation? It’s a topic I’ve blogged about before, but Ezra Klein chimes in to the discussion and explains that the liberal education at Harvard is failing the students, and this provides a golden opportunity for Wall Street:

What Wall Street figured out is that colleges are producing a large number of very smart, completely confused graduates. Kids who have ample mental horsepower, incredible work ethics and no idea what to do next. So the finance industry takes advantage of that confusion, attracting students who never intended to work in finance but don’t have any better ideas about where to go.

It begins by mimicking the application process Harvard students have already grown comfortable with. “It’s doing a process that you’ve done a billion times before,” explains Dylan Matthews, a Harvard senior.

“Everyone who goes to Harvard went hard on the college application process. Applying to Wall Street is much closer to that than applying anywhere else is. There are a handful of firms you really care about, they all have formal application processes that they walk you through, there’s a season when it all happens, all of them come to you and interview you where you live. Harvard students are really good at formal processes like that, and they’re less good at going on Monster or Craigslist and sorting through thousands of job listings from thousands of companies whose reputations they don’t know. Wall Street and consulting (and Teach for America, too) turn applying to jobs into applying to college, more or less.”

Yet that’s only half of it. A bigger draw, explained a recent Harvard graduate who majored in social science and worked at Goldman Sachs for two years, is how Wall Street sells itself to potential applicants: As a low-risk, high-return opportunity that they can try for a few years and, whether they like it or hate it, use to acquire real skills to build careers.

In other words, Wall Street is promising to give graduates the skills their university education didn’t. It’s providing a practical graduate school that pays students handsomely to attend. Sometimes, the enrollees end up liking their job in finance, or liking the lifestyle that it affords them, so they stick around. Sometimes, they don’t. Either way, Wall Street is filling a need that our educational system should be filling.

So it seems universities have been looking at the problem backward. The issue isn’t that so many of their well-educated students want to go to Wall Street rather than make another sort of contribution. It’s that so many of their students end up feeling so poorly prepared that they go to Wall Street because they’re not sure what other contribution they can make.

Your thoughts?

How Companies Learn Your Secrets

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As the ability to analyze data has grown more and more fine-grained, the push to understand how daily habits influence our decisions has become one of the most exciting topics in clinical research, even though most of us are hardly aware those patterns exist…

This is a fascinating New York Times piece that explores how stores monitor shoppers’ behavior and then market to them accordingly, with the hope they come back to the store and spend more money. The NYT piece focuses on Target, and in particular, pregnant shoppers… The central question: how could they get their advertisements into expectant mothers’ hands without making it appear they were spying on them? How do you take advantage of someone’s habits without letting them know you’re studying their lives?

First, the background of how Target monitors shoppers in stores using a unique Guest ID:

Also linked to your Guest ID is demographic information like your age, whether you are married and have kids, which part of town you live in, how long it takes you to drive to the store, your estimated salary, whether you’ve moved recently, what credit cards you carry in your wallet and what Web sites you visit. Target can buy data about your ethnicity, job history, the magazines you read, if you’ve ever declared bankruptcy or got divorced, the year you bought (or lost) your house, where you went to college, what kinds of topics you talk about online, whether you prefer certain brands of coffee, paper towels, cereal or applesauce, your political leanings, reading habits, charitable giving and the number of cars you own.

Much of the piece focuses on human behaviors, and how these behaviors become habits if they’re consistently repeated:

The process within our brains that creates habits is a three-step loop. First, there is a cue, a trigger that tells your brain to go into automatic mode and which habit to use. Then there is the routine, which can be physical or mental or emotional. Finally, there is a reward, which helps your brain figure out if this particular loop is worth remembering for the future. Over time, this loop — cue, routine, reward; cue, routine, reward — becomes more and more automatic. The cue and reward become neurologically intertwined until a sense of craving emerges. What’s unique about cues and rewards, however, is how subtle they can be.

My favorite part of the piece is about Febreze, a product that P&G initially marketed to combat orders. Unfortunately, it was a dud. Turns out, P&G was marketing Febreze as a *way* to remove odors, but what made it more effective was convincing people to use the product as a reward after the routine of cleaning (i.e., it was re-marketed as a reward):

And so Febreze, a product originally conceived as a revolutionary way to destroy odors, became an air freshener used once things are already clean. The Febreze revamp occurred in the summer of 1998. Within two months, sales doubled. A year later, the product brought in $230 million. Since then Febreze has spawned dozens of spinoffs — air fresheners, candles and laundry detergents — that now account for sales of more than $1 billion a year. Eventually, P.& G. began mentioning to customers that, in addition to smelling sweet, Febreze can actually kill bad odors. Today it’s one of the top-selling products in the world.

A note on how Target sent ads and coupons to expectant mothers without making them upset:

“We have the capacity to send every customer an ad booklet, specifically designed for them, that says, ‘Here’s everything you bought last week and a coupon for it,’ ” one Target executive told me. “We do that for grocery products all the time.” But for pregnant women, Target’s goal was selling them baby items they didn’t even know they needed yet.

“With the pregnancy products, though, we learned that some women react badly,” the executive said. “Then we started mixing in all these ads for things we knew pregnant women would never buy, so the baby ads looked random. We’d put an ad for a lawn mower next to diapers. We’d put a coupon for wineglasses next to infant clothes. That way, it looked like all the products were chosen by chance.

The conclusion is startling: your favorite department store will be (if it isn’t already) sending you coupons for products you desire before you even know you want them…

E-Books Can’t Burn

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Another pro-ebook argument, this time courtesy of Tim Parks at New York Review of Books:

Only the sequence of the words must remain inviolate. We can change everything about a text but the words themselves and the order they appear in. The literary experience does not lie in any one moment of perception, or any physical contact with a material object (even less in the “possession” of handsome masterpieces lined up on our bookshelves), but in the movement of the mind through a sequence of words from beginning to end. More than any other art form it is pure mental material, as close as one can get to thought itself. Memorized, a poem is as surely a piece of literature in our minds as it is on the page. If we say the words in sequence, even silently without opening our mouths, then we have had a literary experience—perhaps even a more intense one than a reading from the page. It’s true that our owning the object—War and Peace or Moby Dick—and organizing these and other classics according to chronology and nation of origin will give us an illusion of control: as if we had now “acquired” and “digested” and “placed” a piece of culture. Perhaps that is what people are attached to. But in fact we all know that once the sequence of words is over and the book closed what actually remains in our possession is very difficult, wonderfully difficult to pin down, a richness (or sometimes irritation) that has nothing to do with the heavy block of paper on our shelves.

The e-book, by eliminating all variations in the appearance and weight of the material object we hold in our hand and by discouraging anything but our focus on where we are in the sequence of words (the page once read disappears, the page to come has yet to appear) would seem to bring us closer than the paper book to the essence of the literary experience. Certainly it offers a more austere, direct engagement with the words appearing before us and disappearing behind us than the traditional paper book offers, giving no fetishistic gratification as we cover our walls with famous names. It is as if one had been freed from everything extraneous and distracting surrounding the text to focus on the pleasure of the words themselves. In this sense the passage from paper to e-book is not unlike the moment when we passed from illustrated children’s books to the adult version of the page that is only text. This is a medium for grown-ups.

I am not in complete agreement with the argument (especially the part I bolded above). For instance, there is something intangible that makes me want to read the classics in a hardcover versus an e-book… And what about the sense of smell? I love opening up old editions and partaking in the reading experience: sight, smell, and touch.

The Golden Age for the Individual Investor

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Tadas Viskanta, founder and editor of financial blog Abnormal Returns, writes that there has never been a better time to be an individual investor. Citing the advent of low-fee ETFs, blossoming of options markets, and most importantly the rise of technology and social tools, Tadas explains his argument:

  1. Easier:  Investors today can with a brokerage account and a computer is now only a few mouse clicks away from a globally diversified portfolio of ETFs that in terms of expenses rivals what institutions paid a decade ago.  For all intents and purposes the expense ratio on the big ETFs is closer to 0.0% that 1.0%.  Many brokers now allow online trading of individual bonds and overseas securities.
  2. Cheaper:  Brokerage commissions continue to get driven towards $0 over time.  In fact, many brokers today provide commission-free trading of a range of ETFs.  Options strategies that would have been cost-prohibitive a few years ago are now viable strategies today.  Do you remember when you used to have to pay extra for real-time quotes?  Today real-time quotes are a commodity.
  3. Richer:  The range of asset classes, sectors and strategies available via ETFs is truly dizzying.  It is even for interested parties hard to keep up.  Will most of these more exotic strategies fail?  Probably.  But sometimes a strategy, like low volatility investing, that is based in deep academic research, becomes available to investors.
  4. More social:  Blogging and microblogging (StockTwits & Twitter) has opened up the world of idea generation to the masses.  Anyone with a computer these days can put his or her ideas out there for the world to see.  The blogosphere and Twittersphere is a meritocracy, albeit imperfect, where the smartest and most generous contributors rise to the top.  The social model is pushing into things like earnings estimates with Estimize and institutional-grade services like SumZero.  Many bloggers these days make fun of the raft of ‘free’ webinars that go on these days.  But if you think about it the software and Internet speeds were not there to make mass online seminars possible not all that long ago.
  5. Smarter:  The raw material for investment analysis and trading is of course data.  Financial and price data is for the purposes of most individual investors is free these days.  Many firms are using data in interesting ways.  In the area of fundamental data some firms likeTrefis and YCharts are making fundamental analysis easier.  A firm like AlphaClone allows you to track the moves of (and invest) like the big hedge funds.  When it comes to portfolio level data firms like Wikinvest are aggregating account data making analysis easier for investors.
I’ve been following Tadas’ blog for about six months now, and his daily links are superb. Indeed, Abnormal Returns (and its Twitter feed) is a blog I peruse daily.

Anatomy of an Idea

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Author Steven B. Johnson was perusing his Twitter feed last year and stumbled across someone mentioning his book to a friend (while and also recommending something called “Seeing Like A State.”). From there, Steven B. Johnson tracked down the book, started reading it, and ended up writing a blog post summarizing his thoughts on how his ideas get developed:

1. The discovery process is remarkably social, and the social interactions come in amazingly diverse forms. Sometimes it’s overhearing a conversation on Twitter between two complete strangers; sometimes it’s the virtual book club of something like Findings; sometimes it’s going out to lunch with a friend and bouncing new ideas off them. It’s the social life of information, in John Seely Brown and Paul Duguid’s wonderful phrase — we just have so many more ways of being social now.

2. I find it interesting that there are certain kinds of questions that I now send out by default to Twitter, not Google. The more subtle and complex the question, the more likely it’ll go to Twitter. But if it’s simply trying to find a citation or source, I’ll use Google. So trying to figure out who wrote Seeing Like A State was a Google query, but wondering about the origins of the Internet made more sense on Twitter. (I should add that the responses I’m looking for on Twitter are links to longer discussions, not 140 character micro-essays.)

3. Priming is everything. All these new tools are incredible for making rapid-fire discoveries and associations, but you need a broad background of knowledge to prime you for those discoveries. I’m not sure I would have jumped down that wonderful rabbit hole of the French railway design if I hadn’t seen that map in grad school two decades ago. Same goes for the Hayek and the internet history as well. I had enough pre-existing knowledge to know that they belonged in the story, so when something about them got in my sights, I was ready to pounce on it.     

4. Very few of the key links came from the traditional approach of reading a work and then following the citations included in the endnotes. The reading was still critical, of course, but the connective branches turned out to lie in the social layer of commentary outside of the work.

5. It’s been said it a thousand times before, by me and many others, but it’s worth repeating again: people who think the Web is killing off serendipity are not using it correctly.

6.  Finally, this simple, but amazing fact: almost none of this–Twitter, blogs, PDFs, eBooks, Google, Findings–would have been intelligible to a writer fifteen years ago. 

I haven’t yet read Johnson’s Where Good Ideas Come From, but I did read his Mind Wide Open and can recommend it.