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  • Send Me Another Expert

    Now that the jingoistic gush fest that is the Olympics is over we can all recover from the notion that every Australian athlete who actually performed up to expectations was a genius and that those that failed to do so still had a big future in front of them (most likely in hospitality) we can… Read more…

    Send Me Another Expert
  • The Monty Hall Problem

    Imagine that you’re on a television game show and the host presents you with three closed doors. Behind one of them, sits a sparkling, brand-new Lincoln Continental; behind the other two, are smelly old goats. The host implores you to pick a door, and you select door #1. Then, the host, who is well-aware of… Read more…

    The Monty Hall Problem
  • Jaguar F type R AWD vs Porsche 911 Turbo S
  • Is 2016 the Worst Year in History?

    If you listened to the breathless and somewhat hysterical local media then you would think it is but then you would be wrong…… When news of the truck killings in Nice, France, broke last week, I started seeing variations of the same sentiment on Twitter and Facebook: Is this the worst year ever, or what?… Read more…

    Is 2016 the Worst Year in History?

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Send Me Another Expert

Now that the jingoistic gush fest that is the Olympics is over we can all recover from the notion that every Australian athlete who actually performed up to expectations was a genius and that those that failed to do so still had a big future in front of them (most likely in hospitality) we can sit down at look at the notion of predictions. One of the interesting things about social science style events such as the Olympics is that they bring forth a number of predictions and as the games were approaching I collected a number of these predictions for future reference. Knowing full well that most would miss the mark – some spectacularly as you can see by the chart below.

prediction

Event  such as politics, economics and sport are extraordinarily hard to make predictions about because of their extraordinarily chaotic nature and in the case of sport the reliance upon humans not being human. Consider the recent Brexit vote; forecasters had the Stay vote as being on track for winning. Right up until the time it didn’t. Likewise predictions surrounding the FTSE were equally off the mark. When it became apparent that the Leave vote was going to win the common refrain from experts was that the FTSE would drop through the floor. It has now moved higher than before the referendum.

The utter failure of forecasters to do better than guessing has been known for a long time and was first brought to widespread attention by Phillip Tetlock in the 1980’s. He found that  forecasters performed little better than groups of knowledgeable amateurs and it is the loudness of their argument that carries the day. Not only are expert forecasters wrong most of the time but they are also unable to self correct or learn from their failures. One of the great things about science, particularly quantitative fields such as mathematics and physics is that it is self correcting and this self correction brings about a unique form of internal consistency. Social sciences because they are in part driven by personality lack this functionality – there is no capacity for self correction. To get a sense of this consider the graph below which tracks the stockmarket predictions of Marc Faber.faber-timeline

As you can see Faber has been predicting a stockmarket crash of biblical proportion every year since Moses played full back for the Mount Sinai Under 11B’s. What is interesting about this sort of prediction and its absolute failure is that if you Google Marc Faber you get an endless stream of news sites reporting breathlessly on his latest prognostication.  Yet none report on his consistent failure, failures that have undoubtedly cost investors a small fortune.  What is more intriguing is that Faber has no mechanism for correcting his internal failure, there seems to be no acknowledgement of previous errors. This is not a failing unique to him, virtually everyone in the public arena who makes predictions that are consistently wrong fail to acknowledge their errors. This failure to acknowledge error is a natural human phenomenon – we all act to defend our egos and in the case of public guesswork we tend to fall in love with our guesses. This is why you will never see a politician admit that they are wrong, leaving aside that most are self serving, self obsessed marginal sociopaths.

As the market reminds me everyday i actually know very little about trading and I rely upon the market to tell me what it knows. Trouble for traders occurs when they start to think they actually know something.

The Monty Hall Problem

Imagine that you’re on a television game show and the host presents you with three closed doors. Behind one of them, sits a sparkling, brand-new Lincoln Continental; behind the other two, are smelly old goats. The host implores you to pick a door, and you select door #1. Then, the host, who is well-aware of what’s going on behind the scenes, opens door #3, revealing one of the goats.

“Now,” he says, turning toward you, “do you want to keep door #1, or do you want to switch to door #2?”

More here – Pricenomics

Jaguar F type R AWD vs Porsche 911 Turbo S

Is 2016 the Worst Year in History?

If you listened to the breathless and somewhat hysterical local media then you would think it is but then you would be wrong……

When news of the truck killings in Nice, France, broke last week, I started seeing variations of the same sentiment on Twitter and Facebook: Is this the worst year ever, or what? (“Dear 2016,” one meme asked. “Y U No End Soon?”) Terror attacks, Zika, Brexit, police shootings, Syria, Trump, record-hot temperatures, the losses of Prince and David Bowie—this has been one unrelenting turn around the calendar. Have terrifying events truly piled up on each other in 2016, in a way they didn’t in any other year in human history? Or is it impossible to judge the awfulness of a year while it’s still unfolding? Do we just notice negative happenings more these days because of our high levels of connectivity? And what does “worst year” even mean—“worst year” for Americans, for humanity, for the planet?

The question of how to determine a “worst year” in history piqued my interest. So I decided to ask a group of historians to nominate their own “worst years” and to reflect on what constitutes a “really bad year.” Ten brave souls agreed to play this parlor game with me. Here are their picks.

More here – Slate

The Permission Gap

More wisdom from Carl Richards.

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Who Is the Tallest Dwarf?

I noticed during the Olympics that an industry superannuation fund known as REST were trying to convince me how good they are. The catch cry of the ad is that investing is a marathon and not a sprint – you wont get any argument here on that point. Too many people believe that investing irrespective of the approach used is somewhat akin to winning Tattslotto. According to REST one of their funds had been ranked number one over a ten year period versus all their competitors. Bold claim I thought so it was time to fire up Google, find a source of data (Morningstar Funds Rating) and drop some data into Excel and see if this claim was true. Lo and behold it was. Their growth strategy fund was ranked number one with an average ten year return of 6.70%. I have dropped a table of the top ten funds in below.

10

As you can they show their competitors a clean pair of heels. There is only one problem, during the same period the market returned an average of 8.1% so whilst REST’s boast is true in that they did outperform their rivals they like all of the 345 other funds in the list I have managed to under perform the market. Their claim of being number one is a little bit like claiming your are the tallest of the seven dwarfs – you may be the tallest but you are still a dwarf.  Remember this is a growth fund – it is supposed to do better than the market not worse. Looking through the data I had got me thinking about the worst performing funds and I have dropped a list of these below.

worst

As best as I can figure the average rate of inflation for the past decade has been about 2.4% so these bottom performing funds have made no return for their members. In fact about one in seven funds seemed to make no effective return over the last decade and it seems as if the most frequently occurring bottom of the league table funds are ANZ based funds.

My dislike of the funds management industry is no secret. From my perspective it is hard to find an industry that is so richly compensated for being so bad at their jobs. But there is a much wider issue at play here and it relates to the distribution of the old and the young.  Data released during the week from the United Nations Population Division show that we are on the cusp of an historic reversal in the ratio of those over 65 to those under 65. They estimate that crossover will occur in 2030 in Australia.

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The report states –

In the year 2000, there were already 27 countries with an ageing index above 100, 17 them were in Europe except Japan. In six countries―Bulgaria, Germany, Greece, Italy, Japan, and Spain―the index was above 130 persons. In that same year, the ageing index in 18 countries, mostly in Africa, was below 10. By the year 2050, there will be more than 3 persons aged 60 or over per child (ageing index above 300) in 10 countries or areas, including 1 from the less developed regions, China, Macao SAR. In Italy and Spain, this ratio is expected to reach nearly 4 older persons per child (ageing index above 360). At the same time, the index is projected to remain under 25 (more than 4 children per older person) in 16 countries or areas, mostly in Africa.

The mechanism by which we fund our ageing population is of national importance and the current superannuation system is in no way assisting in solving this problem. It is impossible for retirees to fund their retirement if they lose decades of performance. Whilst I cannot give advice if I were employed and forced to take on superannuation I would opt for the lowest cost index linked fund I could find. Its not perfect but it is certainly better than the alternative.

In fact if it were up to me and I was feeling particularity grumpy I would nationalise the entire industry and drop everyone into a zero cost index fund.

Is “Grit” Really the Key to Success?

In  the summer of 2004, Angela Duckworth, then a graduate student in psychology at the University of Pennsylvania, went up to West Point to study 1,200 new cadets. The first-years were about to start “Beast Barracks,” an infamous seven-week training program during which they’d toil in the classroom and on the field for 17 hours every day without a break. Many would drop out. Duckworth wanted to find out why some cadets managed to endure this challenge, while others just gave up.

Scientists have tried to solve this puzzle for more than 50 years, writes Duckworth in her new book Grit: The Power of Passion and Perseverance. But even the school’s best means of screening its applicants—something called the “whole candidate score,” a weighted mixture of a student’s SATs, high school ranking, leadership ability, and physical fitness—does not anticipate who will succeed and who will fail at Beast. So Duckworth designed her own way of scoring candidates, giving each a survey that tested his or her willingness to persevere in pursuit of long-term goals. She called this measure “grit.” And guess what? Grit worked. The cadets’ survey answers helped predict whether they would make it through the grueling program.

Duckworth’s best-seller peddles a pair of big ideas: that grit—comprising a person’s perseverance and passion—is among the most important predictors of success and that we all have the power to increase our inner grit. These two theses, she argues, apply not just to cadets but to kids in troubled elementary schools and undergrads at top-ranked universities and to scientists, artists, and entrepreneurs. Duckworth’s book describes a wide array of  “paragons of grit,” people she’s either interviewed or studied from afar: puzzlemasters and magicians, actors and inventors, children and adults, Steve Young and Julia Child. Grit appears in all of them, sprinkled over their achievements like a magic Ajax powder. In tandem with some feisty scrubbing, it dissolves whatever obstacles might hold a person back.

More here – Slate

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