When Lebron, Dwight, Harden or even Lin decided to go to another Team the media and fans alike cried foul calling them names. They were called traitors for not looking after the interest of the team and it's owners. Please note that they did this through free agency. Let's pause for a moment and see what is happening right now in NBA.
The Celtics traded their star Kevin Garnett and a fellow star Paul Pierce who had not played for any other team through out his career. The Heat have amnestied Mike Miller. I mean Mike Miller who played through injuries and made key plays in both of it's championship runs. Apparently the management thought hard to keep him but decided to amnesty him in the best interest of the team and save 20+ million. The Lakers did the same with Metta World Peace. Imagine game 7 of the Lakers last championship without Metta World Peace on the hardwood floor. The list goes on and on. The lowly Bucks would not offer a good deal to bring back their second best player on their team in Monta Ellis. It was not as if he was demanding a whole lot.
The media has to say only this - the teams are doing the best to stay competitive in the new CBA environment. It is an easy defense. It is understandable why the media does it. It makes for a good story by demonizing the players who are the faces of the franchises. They can work on that story over and over again for weeks if not months and seasons to come. Pissing off a wealthy team owner who could cut your access to his team is not in the best interest of a puny sports analyst. Some of the team owners could be the media owners or friends of the owners exercising pressure to not cover the team owners negatively.
But the fact that fans cannot see through this is a travesty. The first thing to note is that all the city based franchises are owned by corporations. Loyalty to the city is an easy way to bind the fans to the franchise and increase their revenue. These teams are nothing but corporations trying to make the most money. Also a one with revenue sharing and near zero competition arena. Your team is the only team competing for your loyalty in your city(at least in most cities other than LA and NYC). The revenue sharing has ensured that ownership does not have to be good at their business side of it. No wonder you see bad decisions over and over again by teams in Detroit, Philadelphia, Charlotte (which is owned by basketball's best player Michael Jordan).
The case of Michael Jordan is interesting. Once upon a time he was supposedly the best player on earth. During that time, the CBA(collective bargaining agreement) ended and he debated vocally against giving more revenue share to the teams ownership. He argued that players are what makes the game great and are entitled to more revenue than they were receiving. Few years pass, he retires, un-retires, joins the wizards, retires again after couple disastrous seasons there, buys a team and relocates it to his home town in Charlotte, NC. Now lucky for him, he gets to be part of the owners club when the current CBA ends and negotiation talks reach a stalemate. He for everyone's surprise wanted more share for himself as owner. The players had to give in. He got a pass from the media as an owner for his hypocrisy but not for his comments when he was a player.
But sports is not the only place where abstract notions like loyalty are expected of many with little or no power and a pass is given to people with power. Let us take political parties. Imagine a candidate who has been serving the community for few decades as a Senator. He has been with a party and the party decides to go ultra conservative or ultra liberal which is not to his liking. He decides to join the other party. Would you think he would win? No, he would be called a traitor by his new party and old party affiliates alike. Case in point is Arlen Specter ex-senator of PA who was put to shame for switching parties a few years ago. Needless to say, he lost his re- election. I mean individuals who are caught for corruption, cheating and adultery are much more likely to contest and win an election provided they stick to their parties. Please note that I am not advocating individuals that switch parties for winning election. The topic of conversation here is expectations of loyalty.
This probably plays out in even smaller entities. I was talking to a friend of mine who mentioned of trouble in his apartment complex. The apartment association is in cahoots with the owners and let in some illegal construction. When a few sane folks objected, they were told to abide by the decision of the association's elected body. They were apparently being called traitors and are accused of having causing disharmony with selfish motives.
I have seen this play out over and over again in different aspects of my life - public , private and everything in between. An abused women is asked to be loyal to her husband and adjust for family's sake, society's sake and whatever others reason. How often do we see this happen. Too many times for my personal comfort. In most of these cases, the woman is the one with hardly any power and/or any earning potential. Whereas the man is the one with power, both physical and economical. In most societies the woman who makes a fuss is called a word that rhymes with itch. her own family sometimes disowns her. Again I am not advocating divorce by women nor am I stating that it does not happen with men. The purpose is to drive a common theme where loyalty is used as a way to keep people with less power submissive to ones with more power.
So why is loyalty one way road. Why is it that individuals are expected to be loyal to entities that hold much more power.
Thursday, July 18, 2013
Monday, March 25, 2013
Monday, March 11, 2013
What I am reading today?
Wednesday, March 6, 2013
Articles I am reading today
General:
How much proof do we need? - Malcolm Gladwell at University of Pennsylvania 2/14/2013
Aaron Swartz wanted to save the world. Why couldn’t he save himself?
Epiphany Addiction
Aaron Huey: America's native prisoners of war
Garth Lenz: The true cost of oil
On investing:
Dollar-cost averaging just means taking risk later
Does Dollar Cost Averaging Work?
Dollar Cost Averaging $100 Per Month Into the S&P 500 Over 30 Years (Minus CPI)
How much proof do we need? - Malcolm Gladwell at University of Pennsylvania 2/14/2013
Aaron Swartz wanted to save the world. Why couldn’t he save himself?
Epiphany Addiction
Aaron Huey: America's native prisoners of war
Garth Lenz: The true cost of oil
On investing:
Dollar-cost averaging just means taking risk later
Does Dollar Cost Averaging Work?
Dollar Cost Averaging $100 Per Month Into the S&P 500 Over 30 Years (Minus CPI)
Tuesday, March 5, 2013
Sunday, June 17, 2012
Father's day, remembering one and being one
It has been several months since I have blogged. It is not because of lack of ideas, nor is lack of want. I think it is lack of time. But today on Dad's day, I wanted to post something about my Dad. I want to start out with wishing all my friends 'Happy Father's Day'. I am typing this while my kid is sleeping and the lady of the house at work.
It was almost 16-18 years ago that this incident happened. It is one of those events in your life that may not be spectacular by regular standards but still leaves a lasting impression in your mind. My Dad would have been in his mid forties. I don't remember the purpose but I do remember that I was going with my parents for something to buy in the old city(aka downtown) of my hometown. We couldn't take my Dad's scooter as I was quite grown up by then and three of us on a tiny scooter would be awkward. So we were taking the public transportation in the form of a bus. As in any country these public transportation buses were irregular and would not stop at the right location. So it turned out that my mom and myself got off the bus at the wrong stop while my Dad remained in the bus. It was the days when there were no cell phones yet. So our departure from the bus meant that we most likely would have lost few hours finding each other. My Dad saw us on the road from the moving bus and we didn't do much except to be surprised that he was still in the bus. We realized that this was the wrong stop. But then my Dad did something that amazes me even today.
My Dad never had the gift of good health. He had by-pass surgery during a period when Heart diseases were a big risk to life. I have seen him and my family at the most vulnerable. Since then I have always seen my Dad as someone who was not physically gifted and agile. He was not a risk taker nor was he an adventurous person and that did not help better his image in my mind.
So on this fateful day, this was what I saw. This is an act that millions of teens do everyday in every town of India without skipping a heartbeat. I have myself done that reckless act several times prior to that day and on couple occasions have gotten my shirt and pants ripped while kissing the asphalt. The fact that this act was done by MY DAD was something eventful for me. The gentleman who always taught me to be careful and cautious had done this. The bus was speeding off and had gotten to almost full speed. My Dad got through the crowd on the foot board and jumped off the bus. He didn't jump off in an awkward fashion and fall off. He was facing the direction the bus was going, had his left leg landed on the road, let go off his right hand holding the bus, and went into a inertia led run off on the road with his right leg forward. His first few steps forward were with such quickness, I feared he would not be able to control the speed and would fall and hurt himself. Well he did not fall. He completed the act with the panache of a veteran teen. I was in late teens and had gotten into a 'teach your parent' spurt. But this time I was spellbound. My mom had a few things to say to my Dad while I kept my mouth shut. I learned that a vulnerable old man can sometimes surprise you with acts that you never thought he was capable of.
************************************
Moving to current times, I now am a father of my three year old. Like my Dad, I am always preaching carefulness, cautiousness to my daughter. I am not sure she understands any of that but it is kind of a habit now for me. My family thinks I may be a little over protective of her which I completely deny. So this one day we were at the playground and saw a girl who looked younger than mine with her parents. The girl with the help of her Dad was able to climb up a ladder lattice sort of thing made of chains. This ladder thing leads to the slides. There are other ways to get to the slides like the regular stairs. I was amazed that this younger kid could climb up this difficult wobbling ladder. I even complained to my wife about this and how our kid cannot do this. She gave me a look and did not say much. The next day, I was with my daughter at the same park. While my kid was playing, I began to think. I just assumed that my kid could not climb the ladder. I did not ever take her to that set of slides. I decided to take my kid to those set of slides that had the chain ladders. With little encouragement and support, my kid was able to easily climb up the stairs. Not only did she climb the ladders, she came back down and climbed up another rock climbing sort of setup that was taller and difficult with little support from me.
We tend to believe that our family members are capable of certain limited things and incapable of several other 'cool' things based on what you see and hear. My Dad taught me not to pigeonhole the capabilities of your family. Several years later, my daughter is teaching me the same lesson again.
It was almost 16-18 years ago that this incident happened. It is one of those events in your life that may not be spectacular by regular standards but still leaves a lasting impression in your mind. My Dad would have been in his mid forties. I don't remember the purpose but I do remember that I was going with my parents for something to buy in the old city(aka downtown) of my hometown. We couldn't take my Dad's scooter as I was quite grown up by then and three of us on a tiny scooter would be awkward. So we were taking the public transportation in the form of a bus. As in any country these public transportation buses were irregular and would not stop at the right location. So it turned out that my mom and myself got off the bus at the wrong stop while my Dad remained in the bus. It was the days when there were no cell phones yet. So our departure from the bus meant that we most likely would have lost few hours finding each other. My Dad saw us on the road from the moving bus and we didn't do much except to be surprised that he was still in the bus. We realized that this was the wrong stop. But then my Dad did something that amazes me even today.
My Dad never had the gift of good health. He had by-pass surgery during a period when Heart diseases were a big risk to life. I have seen him and my family at the most vulnerable. Since then I have always seen my Dad as someone who was not physically gifted and agile. He was not a risk taker nor was he an adventurous person and that did not help better his image in my mind.
So on this fateful day, this was what I saw. This is an act that millions of teens do everyday in every town of India without skipping a heartbeat. I have myself done that reckless act several times prior to that day and on couple occasions have gotten my shirt and pants ripped while kissing the asphalt. The fact that this act was done by MY DAD was something eventful for me. The gentleman who always taught me to be careful and cautious had done this. The bus was speeding off and had gotten to almost full speed. My Dad got through the crowd on the foot board and jumped off the bus. He didn't jump off in an awkward fashion and fall off. He was facing the direction the bus was going, had his left leg landed on the road, let go off his right hand holding the bus, and went into a inertia led run off on the road with his right leg forward. His first few steps forward were with such quickness, I feared he would not be able to control the speed and would fall and hurt himself. Well he did not fall. He completed the act with the panache of a veteran teen. I was in late teens and had gotten into a 'teach your parent' spurt. But this time I was spellbound. My mom had a few things to say to my Dad while I kept my mouth shut. I learned that a vulnerable old man can sometimes surprise you with acts that you never thought he was capable of.
************************************
Moving to current times, I now am a father of my three year old. Like my Dad, I am always preaching carefulness, cautiousness to my daughter. I am not sure she understands any of that but it is kind of a habit now for me. My family thinks I may be a little over protective of her which I completely deny. So this one day we were at the playground and saw a girl who looked younger than mine with her parents. The girl with the help of her Dad was able to climb up a ladder lattice sort of thing made of chains. This ladder thing leads to the slides. There are other ways to get to the slides like the regular stairs. I was amazed that this younger kid could climb up this difficult wobbling ladder. I even complained to my wife about this and how our kid cannot do this. She gave me a look and did not say much. The next day, I was with my daughter at the same park. While my kid was playing, I began to think. I just assumed that my kid could not climb the ladder. I did not ever take her to that set of slides. I decided to take my kid to those set of slides that had the chain ladders. With little encouragement and support, my kid was able to easily climb up the stairs. Not only did she climb the ladders, she came back down and climbed up another rock climbing sort of setup that was taller and difficult with little support from me.
We tend to believe that our family members are capable of certain limited things and incapable of several other 'cool' things based on what you see and hear. My Dad taught me not to pigeonhole the capabilities of your family. Several years later, my daughter is teaching me the same lesson again.
Thursday, February 2, 2012
The curse of retirement and early thoughts on it.
There are two ways of looking at the untimely death of Joe Paterno. One, a practical one, is that he was old and died of a very serious illness of lung cancer where the survival rate is low. Second, an emotional one, is that he had such a short time to live in his retirement. Few years ago, my dad passed away within three years of his retirement. He retired from his job as accounts manager after about 30 years at the only job he held. He did not start out as the manager, but was promoted to different positions over the period and retired as accounts manager. His retirement life, though was not that much fun or relaxing as he had expected it to be. The same was the case with my father-in-law. He retired from his job as a doctor with the state government and passed away shortly after his retirement. His retired life turned out to be miserable with bad health.
Among people in their middle age, it is not unusual to think of think of retirement as a goal. Retirement, is seen as a utopia spent on the sands of tropical beaches, vacationing in Paris sipping coffee, taking a gondola in Venice and not worrying about a thing. The popular culture also promotes this. Some business leaders while selling their books use 'do you want an early retirement, then read this' slogan to sell their products. Early retirement or retirement itself is seen as the escape from the rut of work, so we can wander off to this heavenly land to pursue our dreams without having to worry about reporting to someone. The truth is far from this Utopian dream.
One might say, that is a very morbid deduction based on few personal and popular anecdotal evidence. So lets dig into to studies that are done on this topic. The first study I read several years ago was this Greek EPIC Study (EPIC stands for European Prospective Investigation of Cancer and not some study the size of legendary Iliad and Odyssey). Please see below the findings of the study.
In comparison to subjects still employed, retirees had a 51% increase in all-cause mortality (95% confidence interval: 16, 98). Among retirees, a 5-year increase in age at retirement was associated with a 10% decrease in mortality (95% confidence interval: 4, 15).
An earlier study done on employees of Shell Oil Company and published in 2005 concludes
Is it possible that there is a study that has the completely opposite findings? You bet there is. A 2009 study in Germany concludes this
Money - Most people are likely to postpone planning for retirement, leave alone planning ones financial future for the age of retirement. But financial planning is important as it effects everything. It effects your heath, emotional well being, security and at times family ties. Even if you have a pension from work and social security from the federal government, a considerable financial backup may be necessary as the pension may not be sufficient to cover your expenses. If you do not have a pension plan from work then it is even more important. At the minimum, one should make full contributions to your IRA, 401K, 403b etc which are tax deferred . At $16,500/year59½ years, and the life expectancy is 78½. One needs to have a financial reserve to last once post retirement lifetime of about 19 year. The retirement calculator from AARP estimated that I need about $10,000,000 for a good retired life. That's a lot of zeros in there. We are all not millionaires but these calculators want us to have millions. Let's just you are in your mid 30s like me. You have about 25-30 years before you can retire at 60. So in the next 25 years or so you need to accumulate about $10 million in your retirement savings account(s). The calculator also told me that my current savings of 25% will put me $2.5 million below my target required for retirement and that I need to ramp up my savings to either 35% or reduce my lifestyle.
Health - Too much ink has been spilled on this topic. We all know that we need to exercise; exercise physically and exercise restraint on what we eat. And of course the genetic pool we are gifted by birth will have us disposed to certain kinds of diseases and illnesses. The latter part is out of our control and the first part is somewhat within our control. It is hard to find time to exercise with all the commitments to human and non-human entities in our lives. The human entities are our commitments to our family, kids and friends. The non-human are our work, chores, TV, movies and Internet etc. The second part is the diet. I personally struggle with it between bouts of indulgence and self induced diet control. Whatever it is, the key is to listen to your gut. If you pants don't fit as they used it, don't just go and buy a bigger size. It is easier to get from 34 back to 32 than from 42 to 32. Just saying. So whether you exercise or not and diet or not, one must thing to do is have an annual wellness check by your physician. I think we owe it ourselves to spare a few hours in a year for our well-being. Most often, people neglect going to doctors assuming minor irregularities are routine issues only to find that their health has reached a point requiring lifelong medications with considerable side-effects. Don't let that happen to you.
Company - Nobody argues the fact that we humans cherish the company of family and friends. In fact human contact is necessary to stay healthy and sane. In a newyorker article titled Hellhole, Atul Gawande puts a good argument stating that solitary confinement of prison inmates is torture. Retirees experience loneliness, though I cannot claim it to be as severe a torture. We all have friends and company as kids and in school. We lose some or most of them on moving to the workspace. We spend the most productive periods of our lives and the most productive periods of our week days at work and our social networks are forged at work. When we retire, we may lose these social networks for good. The loneliness from loss of company and the enormous amount of free time that one has on retirement can cause a decreased sense of self worth. Some retirees have the luck of being able to live with their family and kids on retirement. If this current generation is any indication, our kids are more likely to live far away from us and we many not be as lucky to live with them. Consider yourself lucky if you manage to live within a driving distance of them. I know few folks who say "I take good care of my kids so they can take care of me during my old age". Besides being very calculative, these folks need a reality check. To me that thought is an insane burden of expectation on the kids. The only alternative, it appears to be, is to follow your mom's advice - "make friends and be nice to your friends'. By this I don't mean to add hundreds of friends on your Facebook. I know some folks do and it is a popularity contest for them. And lets face it, most of us do not have the charm to woo people and have company whenever we like and wherever we go. I mean have friends that are meaningful. Friends that you can share your ups and down, seek advice and offer advice. These friends can be from your family. Even if you have single handful of them, that is more than good to have a happy retired life.
So, I wish you all a wealthy, healthy and joyous retired life in the company of good friends and family.
---------------------------------------------------------------------------------------------------------
Here are more links of interest---
Retiring early at 55 or 60 was not associated with better survival than retiring at 65 in a cohort of past employees of the petrochemical industry. Mortality was higher in employees who retired at 55 than in those who continued working.These studies put my thoughts of early retirement to pause. Both these studies portray a very scary picture for early retirement. But could it be that correlation does not necessarily mean causation. The Shell Oil study adds this caveat - We could not assess directly the issue of whether employees who retired at a younger age were in poorer health than those who retired later as data were not available to identify the type of retirement for each employee. The EPIC study finding suggests that if you want to live longer and healthy, you are better off working longer and retiring later. Though the authors claim to have addressed the matter of 'whether morbidity causes early retirement or early retirement is associated with excess morbidity and subsequent mortality' in their study to conclude that early retirement causes early mortality. However several socioeconomic, occupational and access to health care conditions of the study cohorts in Greece, that were not controlled for, could have influenced the study's conclusion. A detailed response to the study, found here, explains these uncontrolled for conditions in detail.
Is it possible that there is a study that has the completely opposite findings? You bet there is. A 2009 study in Germany concludes this
The youngest male and female pensioners who left the labor market between the ages of 51 and 55 because of their reduced earning capacity faced the highest mortality risk. But healthy people who retire early do not experience shorter long-term survival than those who retire late....early retirement in fact lowers mortality risks significantly by 12% for men and by 23% for women....First of all, individuals with poor health and lower survival chances are filtered out of the labor market. However, healthy pensioners may be protected during retirement. For the former, early retirement is a necessity, for the latter it is an asset. Pension reformers should take health differentials into consideration when cutting back pension programs and increasing retirement age.So where does this bridge to nowhere lead us. Not too far. One thing for sure is that retirement is something that requires some planning. Here are few things that I think are important at the time of retirement - Money, Health and Company. None of these are outlandish. I think we can plan for some of these facets though we cannot completely control them.
Money - Most people are likely to postpone planning for retirement, leave alone planning ones financial future for the age of retirement. But financial planning is important as it effects everything. It effects your heath, emotional well being, security and at times family ties. Even if you have a pension from work and social security from the federal government, a considerable financial backup may be necessary as the pension may not be sufficient to cover your expenses. If you do not have a pension plan from work then it is even more important. At the minimum, one should make full contributions to your IRA, 401K, 403b etc which are tax deferred . At $16,500/year59½ years, and the life expectancy is 78½. One needs to have a financial reserve to last once post retirement lifetime of about 19 year. The retirement calculator from AARP estimated that I need about $10,000,000 for a good retired life. That's a lot of zeros in there. We are all not millionaires but these calculators want us to have millions. Let's just you are in your mid 30s like me. You have about 25-30 years before you can retire at 60. So in the next 25 years or so you need to accumulate about $10 million in your retirement savings account(s). The calculator also told me that my current savings of 25% will put me $2.5 million below my target required for retirement and that I need to ramp up my savings to either 35% or reduce my lifestyle.
Health - Too much ink has been spilled on this topic. We all know that we need to exercise; exercise physically and exercise restraint on what we eat. And of course the genetic pool we are gifted by birth will have us disposed to certain kinds of diseases and illnesses. The latter part is out of our control and the first part is somewhat within our control. It is hard to find time to exercise with all the commitments to human and non-human entities in our lives. The human entities are our commitments to our family, kids and friends. The non-human are our work, chores, TV, movies and Internet etc. The second part is the diet. I personally struggle with it between bouts of indulgence and self induced diet control. Whatever it is, the key is to listen to your gut. If you pants don't fit as they used it, don't just go and buy a bigger size. It is easier to get from 34 back to 32 than from 42 to 32. Just saying. So whether you exercise or not and diet or not, one must thing to do is have an annual wellness check by your physician. I think we owe it ourselves to spare a few hours in a year for our well-being. Most often, people neglect going to doctors assuming minor irregularities are routine issues only to find that their health has reached a point requiring lifelong medications with considerable side-effects. Don't let that happen to you.
Company - Nobody argues the fact that we humans cherish the company of family and friends. In fact human contact is necessary to stay healthy and sane. In a newyorker article titled Hellhole, Atul Gawande puts a good argument stating that solitary confinement of prison inmates is torture. Retirees experience loneliness, though I cannot claim it to be as severe a torture. We all have friends and company as kids and in school. We lose some or most of them on moving to the workspace. We spend the most productive periods of our lives and the most productive periods of our week days at work and our social networks are forged at work. When we retire, we may lose these social networks for good. The loneliness from loss of company and the enormous amount of free time that one has on retirement can cause a decreased sense of self worth. Some retirees have the luck of being able to live with their family and kids on retirement. If this current generation is any indication, our kids are more likely to live far away from us and we many not be as lucky to live with them. Consider yourself lucky if you manage to live within a driving distance of them. I know few folks who say "I take good care of my kids so they can take care of me during my old age". Besides being very calculative, these folks need a reality check. To me that thought is an insane burden of expectation on the kids. The only alternative, it appears to be, is to follow your mom's advice - "make friends and be nice to your friends'. By this I don't mean to add hundreds of friends on your Facebook. I know some folks do and it is a popularity contest for them. And lets face it, most of us do not have the charm to woo people and have company whenever we like and wherever we go. I mean have friends that are meaningful. Friends that you can share your ups and down, seek advice and offer advice. These friends can be from your family. Even if you have single handful of them, that is more than good to have a happy retired life.
So, I wish you all a wealthy, healthy and joyous retired life in the company of good friends and family.
---------------------------------------------------------------------------------------------------------
Here are more links of interest---
Greek EPIC Study - Age at Retirement and Mortality in a General Population Sample
Shell Oil Company Study - Age at retirement and long term survival of an industrial population: prospective cohort study.
German Study - Time to retire--time to die? A prospective cohort study of the effects of early retirement on long-term survival.
Joe Paterno
Labels:
Retirement Planning
Monday, December 26, 2011
Sports: The final frontier for nerds to takeover
The word nerd has negative connotations and is applied derisively to describe people who focus on academics then on oh so important social matters like partying, drinking and everything that is wasteful. The Wikipedia search for Nerd suggests "...the word is derived from "knurd" ("drunk" spelled backwards), which was used to describe people who studied rather than partied.". For better definition of nerd than what is on Wikipedia, read this on NPR. While nerd calling exists widely in the west, it is not so outwardly manifested in the eastern culture where academic success is given due respect. But nerd calling does exist in the east. I know because I have been called one in both the worlds.
During high school and beyond, I was a kid who was picked the last when spitting into two teams for a game of cricket. During my Bachelors days, I had a friend who had an issue with my academic pursuits(he almost always lost). He would suggestively say that more than academic skills, practical skills were necessary to survive in the world. Few years later, I was in the USA and my supervisor at work thought it(I) was weird that I could add two random three digit numbers in few seconds without using a calculator. I was surprised at her behavior because I wasn't even the best among my friends back home when it came to skills related to basic arithmetic without the use of calculator.
With introduction and personal anecdotes out of the way, let me get to the main part. I recently read a book called "Money Ball" by Michael Lewis. I liked the authors other works(books and magazine articles on Economy of US and the world) and bought this book. It was a good read as most of his works are. Coincidentally, the movie starring Brad Pitt by the same name based on the book was released at about the time I was reading the book. Moneyball, published in 2003, is The story of Oakland A's general manager Billy Beane's successful attempt to put together a baseball club on a budget by employing computer-generated analysis to draft his players.
In this book, he describes how the traditional scouts are enamored by the looks of the athletes and judge them by what they felt were good players. The traditional scouts are very bad at picking good players. Billy Beane used computers, spreadsheets and statistics to identify undervalued players, sign them on to play for his team and was very successful in winning baseball games.
The nerds have done well later in life in almost every field, like science, engineering, technology, medicine. It is in entertainment and sports they failed to make inroads for a long time. Other than being the lead men/women, the entertainment industry has slowly but surely been taken over by professional writers, graphics artists, production assistants, technicians etc. Now shows are made with leads portraying nerds. Some sitcoms that come to my mind are '30 Rock'(Tina Fey plays Liz Lemon, a head writer), 'How I met your mother'(the lead Ted Mosby by Josh Radnor is an architect and professor), 'The Big Bang Theory'(my favorite and all 4 men are well stereotypical nerds).
The only field left was sports. Just like in entertainment, the nerds and geeks are making inroads into sports. Nerds have found a way to fit analytics((in baseball they are called sabermetrics) ,what they can do without a blink, to change sports. In baseball, other teams have tried to emulate what Billy Beane did with the Oakland As. Other sports are quickly following suite. NBA is one such sport. The current champions, Dallas Mavericks, employed analytics that helped them win the championship. They have a Basketball Analytics team headed by Roland Beech and is credited for helping the team win the championship. Here is an ESPN article on Dallas Mavericks employing data geekery to win championship. Analytics have been part of NFL for some time now. Here is short history of it. The same is the case for NHL and a good site for hockey analytics is http://hockeyanalytics.com/.
Then there is the Sloan Sports Analytics Conference that is held every year in Boston by MIT Sloan School of Business. In 2011, into it's fifth year since the start in 2007, the conference has grown to 1500 attendees with 300 in the waiting list. In 2007 about 175 attended the conference. That's a leap of 850% in 5 years and is widely covered by the print and television media now. Guest speakers for 2011 include Micheal Lewis, Malcolm Gladwell, Bill Simmons, Mark Cuban etc. This is just to say how popular this conference has become. The research paper grand prize winner for 2011 was an Indian guy Arup Sen(He is a PhD candidate in Economics at Boston University). In this paper Arup Sen provides evidence of moral hazard in long term guaranteed contracts using data from NBA. Of course this is not the first time that ‘contract-year effect’ was suggested, excepting Arup Sen showed evidence, with statistical analysis build in, that players productivity peaks in the last year of the contract and drops in the first year of their long term contract. Another favorite subject of mine is the 'hot hands' and 'crunch-time' lore. There is lot of debate on hot hand in basketball. Analytics say that it does not exists while Athletes vow that it exists. Whatever side you are on, how do counter this - Illusion of Hot Hand makes athletes take bad shots. This is supported in another research paper that professional basketball players may overgeneralize from their very recent experience to their expected future performance. Similarly it is being shown that the widely held belief that some start are better in crunch time is not so true. Kobe Bryant will surely disagree with that analysis.
There are other aspects of sports, other than the actual players playing the game, that is important at the professional level. Some of these aspects are scouting, picking talent in the draft, trading talent, managing the team, coaching etc. I don't want to cover every aspect of sports here as it is beyond the scope of my knowledge. However, there is a general perception that an ex-athlete is better at picking talent and managing the team. Back in the days, whenever India lost a match or series in the game of cricket(which was most of the time unlike now), the reason discussed was that retired athletes are not given enough role in picking the talent and managing the team. On the face of it, this argument is simple. Who better to gauge how good a player is, than one who played the sport at a high level for a long time? However, there is evidence that it is not to be so. For instance, Michael Jordan who is considered to be the best ever to play basketball, has proven so far highly ineffective at picking talent and at making the team he owns, the Charlotte Bobcats, successful. The scouts are mostly players who did not make it big and most of their picks turn out to be duds. This is true in every sport. Here is a video from the Sloan conference that discusses the Draft and how most of the draft picks are busts. The problem is scouts and retired athletes are all looking at a prospect who has the looks. They are carried away by the physical aspects and the recent good showing of the player than the actual metrics of the players athletic abilities in the sport. Analytics can chafe that information out and with technology better analytics can be produced in sports where it is lacking now.
The other part of sports that geekery is making inroads is from the efficiency standpoint of referees. Previously referees could commit mistakes(still do) and get away(still do) with it. The professional leagues levy fines on the players for expressing dissent and reduce accountability on part of the referees for their mistakes. Analysts now are trying to quantify the efficiency of referees and thereby are bringing changes to how sports are regulated on the field. Referee Analytics is now a part of what is discussed at the Sloan Conference. Here is one article quantifying referee bias in Soccer. The introduction of replay in many sports is a welcome change to minimize errors(blunders in some cases) that have direct relation to the outcome of the game. In cricket, a constant problem with referees(called umpires) is with regards to run outs, LBW and nicks. The on field umpires were making and continue to make bad calls with those cases and the television instant replay has fixed the first problem of calling run-outs. All they have to do, is make a call to the third umpire when in doubt. Instant replay is widely used in almost every sport in US. Virtual Eye ball tracking technology and Hot Spot technology address the latter two issues with umpiring in cricket and are now used in the Umpire Decision Review System introduced in international cricket last year.There was a loud outcry and the Indian Cricket management did not accept it as the technologies were not perfect. I would rather take the side of technology than humans when it comes to these close calls in cricket.
With all this hyperbole on the geek adventures in sports, a note of caution is in order. Analytics can only supplement and not take over human decisions. When taken to extremes it has proven to cause trouble. Let us take an example of Long Term Capital Management, from the world of financial markets, that was too Too Big To Fail in 1998 and was bailed out by the Fed. LTCM was a hedge fund started by John Meriwether. It had on its board Myron Scholes and Robert C. Merton who won Nobel Prize in 1997 for their work on creating a model to discover the price of an option. Their work was built upon an earlier work by Louis Bachelier - He is credited with being the first person to model the stochastic process now called Brownian motion.
Scholes and Merton in collaboration with then deceased Black developed a mathematical model for the financial market called The Black–Scholes model or Black–Scholes-Merton or simply Black Model. The mathematical model they derived was a partial differential equation, now called the Black–Scholes equation, which gives one the price of the option with time variable. The problem however was with the assumptions in the model. The Brownian movement assumes that the movements are small, random devoid of external influences or biases. Plotting these movements will generate the familiar bell curve also known as normal or Gaussian distribution. However the stock markets with its risks and frequent wild movements does not behave like a gas molecule. In fact other mathematical models have been proposed to represent the financial markets. One such model supported by Nassim Tabeb of the Black Swan fame is Power Law. LTCM could not in it's mathematical models anticipate the rare events and incurred heavy losses from the 1997 Asian Financial crisis and Russian default in 1998 and deadly combo with leverage(at the height of euphoria they were levered 25:1). It had to be bailed out by a consortium of banks and the fed.
There is great debate still being waged on the caused of the recent financial crisis dubbed the great recession. Of the many reasons some blame has been levied on the excessive reliance on flawed mathematical models VaR(derived by the risk management team at JPM) and the Gaussian Copula Function by David Li. You can read more on how the Var and Copula Function contributed to the crisis here and here respectively. The weird thing is that both these models use the Gaussian Distribution as the core and are widely popular of their simplicity. They spent much time developing a simple model for a complex system with frequent occurring big risks. Both models underestimated the potential risk that they were supposed to measure.
What does mathematical model that over simplifies a financial market got to do with sports and nerds getting into it. Nothing I suppose, but I wanted to caution the excessive reliance on technology and statistical models on measuring players and the sports in general. There is a definite need for advanced statistics that measures the value of players better than the current popular metrics used. For eg., average ppg used in NBA is skewed towards players that play lot more minutes and take lot more shots than say a defensive expert whose contributions to the game are largely overshadowed with this metric. One simple metric that measures other contributions in NBA is Efficiency. A little more complex number called PER(Player Efficiency Rating) was created by John Hollinger of ESPN. PER takes into contributions almost all aspects of basketball including the minutes and pace of the game played. It is a step in a right direction and is getting accepted as a measure of player's current value. However this number has problems - it rewards inefficient shooting and can produce a distorted picture of some defensive specialists who produce few blocks and steals. Please find here a good analysis of problems with PER. I personally think that both efficiency and PER are both skewed towards offensive abilities of a player and are highly correlated with the ppg of players. Clearly a better model is still wanted in NBA.
Thankfully it does not use Gaussian distribution to predict the future value of the player so team managements can load up on a single player. But wait, some teams have already done that without any mathematical model. Eg., Eddy Curry with the Knicks till 2010, Gilbert Arenas with the Magic and Rashard Lewis with the Wizards are just examples of bad contracts. Thankfully there is the amnesty clause that came of the new CBA. Bad Contracts have one advantage though. It gives the owners a good excuse to come back to the table to discuss CBA and demand bigger piece of the revenue pie as reward for their own mistakes. I digress.
We already discussed baseball and how moneyball highlighted the use of analytics by a certain team in the sport. The book highlights the undervalued usage of the metric On-base Percentage. Please listen to this podcast that throws more light on it as I am not a big follower of baseball to provide good analysis.
Lets jump to cricket. A lot of data is collected in cricket, but most of it is centered around the batsmen or the offensive side of the game. Most Man of the Match (equivalent to MVP in American sports) awards go to batsmen. A bowler rarely gets the MVP award unless a player takes at least 4 wickets and the match is won, this too when there is no other big contribution by a batsmen. The value of a batsmen is usually measured by his batting average and the number of 100's and 50s he has scored. This to me is a very skewed metric. A batsmen that comes in the first three positions has a chance to play lot more balls and hence a chance to have better batting average and better chance at scoring more 100s and 50s. What we consider great batsmen come onto the crease at the first three positions. This however skews other important metrics like, how many wins did he contribute to, how many partnerships did he generate, how well did he rotate the bat, how many dot balls did he have, how many chances did he give away(how lucky he was on any given day) that the opposition failed to capitalize on. Similarly for a bowler, the metrics that are used are wickets taken and average runs per over given away. This again fails to measure the contribution to the win, the conditions in which he was playing, how many dot balls did he have(the more the better), how many good length balls did he bowl, did the bowler in tandem get any wickets etc. Fielding is another contribution that is given scant respect. No metrics exist on how much a fielder contributes to the win of a team. Other than who caught the ball when a player gets out, nothing about fielding is measured. A good thorough review of some concerns related to cricket stats can be found here.
With all this I have to conclude with the saying from a superhero nerd aka Spider Man comic strip - 'With Great powers come great responsibility'.
While nerds are making inroads into sports, they are making inroads into the fashion business with their looks. Look for athletes like Dwyane Wade, Lebron James, Kevin Durant who sport the nerdy look quite often. Kevin Durant has taken it a step further with a back pack in tango. Grantland has a feature on this new trend in NBA - The rise of the NBA nerd. More power to my peeps.
A few more links of interest can be found below.
Redistribution: Blocking the Revenge of the Nerds?
Who’s a Nerd, Anyway?
The beauty of the geek
Sloan Sports Analytics Conference Recap
Will Kuntz '06, Real Life MoneyBall "Scout"
Shane Battier - The No-Stats All-Star
Prof. Daniel Kahneman - Nobel prize winner for prospect theory
Reinforcement Learning and Investor Behavior
The Gambler's and Hot-Hand Fallacies: Theory and Applications
Recency: Hot-hands and the Gambler's fallacy
The hot hand belief and the gambler’s fallacy in investment decisions under risk
Success Rates of Traders
What Makes a Rogue Trader Tick?
Hot Hand in Sports
Option Traders Use (very) Sophisticated Heuristics, Never the Black–Scholes–Merton Formula
Warren Buffett on LTCM
Eight Days - The battle to save the American financial system
During high school and beyond, I was a kid who was picked the last when spitting into two teams for a game of cricket. During my Bachelors days, I had a friend who had an issue with my academic pursuits(he almost always lost). He would suggestively say that more than academic skills, practical skills were necessary to survive in the world. Few years later, I was in the USA and my supervisor at work thought it(I) was weird that I could add two random three digit numbers in few seconds without using a calculator. I was surprised at her behavior because I wasn't even the best among my friends back home when it came to skills related to basic arithmetic without the use of calculator.
With introduction and personal anecdotes out of the way, let me get to the main part. I recently read a book called "Money Ball" by Michael Lewis. I liked the authors other works(books and magazine articles on Economy of US and the world) and bought this book. It was a good read as most of his works are. Coincidentally, the movie starring Brad Pitt by the same name based on the book was released at about the time I was reading the book. Moneyball, published in 2003, is The story of Oakland A's general manager Billy Beane's successful attempt to put together a baseball club on a budget by employing computer-generated analysis to draft his players.
In this book, he describes how the traditional scouts are enamored by the looks of the athletes and judge them by what they felt were good players. The traditional scouts are very bad at picking good players. Billy Beane used computers, spreadsheets and statistics to identify undervalued players, sign them on to play for his team and was very successful in winning baseball games.
The nerds have done well later in life in almost every field, like science, engineering, technology, medicine. It is in entertainment and sports they failed to make inroads for a long time. Other than being the lead men/women, the entertainment industry has slowly but surely been taken over by professional writers, graphics artists, production assistants, technicians etc. Now shows are made with leads portraying nerds. Some sitcoms that come to my mind are '30 Rock'(Tina Fey plays Liz Lemon, a head writer), 'How I met your mother'(the lead Ted Mosby by Josh Radnor is an architect and professor), 'The Big Bang Theory'(my favorite and all 4 men are well stereotypical nerds).
The only field left was sports. Just like in entertainment, the nerds and geeks are making inroads into sports. Nerds have found a way to fit analytics((in baseball they are called sabermetrics) ,what they can do without a blink, to change sports. In baseball, other teams have tried to emulate what Billy Beane did with the Oakland As. Other sports are quickly following suite. NBA is one such sport. The current champions, Dallas Mavericks, employed analytics that helped them win the championship. They have a Basketball Analytics team headed by Roland Beech and is credited for helping the team win the championship. Here is an ESPN article on Dallas Mavericks employing data geekery to win championship. Analytics have been part of NFL for some time now. Here is short history of it. The same is the case for NHL and a good site for hockey analytics is http://hockeyanalytics.com/.
Then there is the Sloan Sports Analytics Conference that is held every year in Boston by MIT Sloan School of Business. In 2011, into it's fifth year since the start in 2007, the conference has grown to 1500 attendees with 300 in the waiting list. In 2007 about 175 attended the conference. That's a leap of 850% in 5 years and is widely covered by the print and television media now. Guest speakers for 2011 include Micheal Lewis, Malcolm Gladwell, Bill Simmons, Mark Cuban etc. This is just to say how popular this conference has become. The research paper grand prize winner for 2011 was an Indian guy Arup Sen(He is a PhD candidate in Economics at Boston University). In this paper Arup Sen provides evidence of moral hazard in long term guaranteed contracts using data from NBA. Of course this is not the first time that ‘contract-year effect’ was suggested, excepting Arup Sen showed evidence, with statistical analysis build in, that players productivity peaks in the last year of the contract and drops in the first year of their long term contract. Another favorite subject of mine is the 'hot hands' and 'crunch-time' lore. There is lot of debate on hot hand in basketball. Analytics say that it does not exists while Athletes vow that it exists. Whatever side you are on, how do counter this - Illusion of Hot Hand makes athletes take bad shots. This is supported in another research paper that professional basketball players may overgeneralize from their very recent experience to their expected future performance. Similarly it is being shown that the widely held belief that some start are better in crunch time is not so true. Kobe Bryant will surely disagree with that analysis.
There are other aspects of sports, other than the actual players playing the game, that is important at the professional level. Some of these aspects are scouting, picking talent in the draft, trading talent, managing the team, coaching etc. I don't want to cover every aspect of sports here as it is beyond the scope of my knowledge. However, there is a general perception that an ex-athlete is better at picking talent and managing the team. Back in the days, whenever India lost a match or series in the game of cricket(which was most of the time unlike now), the reason discussed was that retired athletes are not given enough role in picking the talent and managing the team. On the face of it, this argument is simple. Who better to gauge how good a player is, than one who played the sport at a high level for a long time? However, there is evidence that it is not to be so. For instance, Michael Jordan who is considered to be the best ever to play basketball, has proven so far highly ineffective at picking talent and at making the team he owns, the Charlotte Bobcats, successful. The scouts are mostly players who did not make it big and most of their picks turn out to be duds. This is true in every sport. Here is a video from the Sloan conference that discusses the Draft and how most of the draft picks are busts. The problem is scouts and retired athletes are all looking at a prospect who has the looks. They are carried away by the physical aspects and the recent good showing of the player than the actual metrics of the players athletic abilities in the sport. Analytics can chafe that information out and with technology better analytics can be produced in sports where it is lacking now.
The other part of sports that geekery is making inroads is from the efficiency standpoint of referees. Previously referees could commit mistakes(still do) and get away(still do) with it. The professional leagues levy fines on the players for expressing dissent and reduce accountability on part of the referees for their mistakes. Analysts now are trying to quantify the efficiency of referees and thereby are bringing changes to how sports are regulated on the field. Referee Analytics is now a part of what is discussed at the Sloan Conference. Here is one article quantifying referee bias in Soccer. The introduction of replay in many sports is a welcome change to minimize errors(blunders in some cases) that have direct relation to the outcome of the game. In cricket, a constant problem with referees(called umpires) is with regards to run outs, LBW and nicks. The on field umpires were making and continue to make bad calls with those cases and the television instant replay has fixed the first problem of calling run-outs. All they have to do, is make a call to the third umpire when in doubt. Instant replay is widely used in almost every sport in US. Virtual Eye ball tracking technology and Hot Spot technology address the latter two issues with umpiring in cricket and are now used in the Umpire Decision Review System introduced in international cricket last year.There was a loud outcry and the Indian Cricket management did not accept it as the technologies were not perfect. I would rather take the side of technology than humans when it comes to these close calls in cricket.
With all this hyperbole on the geek adventures in sports, a note of caution is in order. Analytics can only supplement and not take over human decisions. When taken to extremes it has proven to cause trouble. Let us take an example of Long Term Capital Management, from the world of financial markets, that was too Too Big To Fail in 1998 and was bailed out by the Fed. LTCM was a hedge fund started by John Meriwether. It had on its board Myron Scholes and Robert C. Merton who won Nobel Prize in 1997 for their work on creating a model to discover the price of an option. Their work was built upon an earlier work by Louis Bachelier - He is credited with being the first person to model the stochastic process now called Brownian motion.
Scholes and Merton in collaboration with then deceased Black developed a mathematical model for the financial market called The Black–Scholes model or Black–Scholes-Merton or simply Black Model. The mathematical model they derived was a partial differential equation, now called the Black–Scholes equation, which gives one the price of the option with time variable. The problem however was with the assumptions in the model. The Brownian movement assumes that the movements are small, random devoid of external influences or biases. Plotting these movements will generate the familiar bell curve also known as normal or Gaussian distribution. However the stock markets with its risks and frequent wild movements does not behave like a gas molecule. In fact other mathematical models have been proposed to represent the financial markets. One such model supported by Nassim Tabeb of the Black Swan fame is Power Law. LTCM could not in it's mathematical models anticipate the rare events and incurred heavy losses from the 1997 Asian Financial crisis and Russian default in 1998 and deadly combo with leverage(at the height of euphoria they were levered 25:1). It had to be bailed out by a consortium of banks and the fed.
There is great debate still being waged on the caused of the recent financial crisis dubbed the great recession. Of the many reasons some blame has been levied on the excessive reliance on flawed mathematical models VaR(derived by the risk management team at JPM) and the Gaussian Copula Function by David Li. You can read more on how the Var and Copula Function contributed to the crisis here and here respectively. The weird thing is that both these models use the Gaussian Distribution as the core and are widely popular of their simplicity. They spent much time developing a simple model for a complex system with frequent occurring big risks. Both models underestimated the potential risk that they were supposed to measure.
What does mathematical model that over simplifies a financial market got to do with sports and nerds getting into it. Nothing I suppose, but I wanted to caution the excessive reliance on technology and statistical models on measuring players and the sports in general. There is a definite need for advanced statistics that measures the value of players better than the current popular metrics used. For eg., average ppg used in NBA is skewed towards players that play lot more minutes and take lot more shots than say a defensive expert whose contributions to the game are largely overshadowed with this metric. One simple metric that measures other contributions in NBA is Efficiency. A little more complex number called PER(Player Efficiency Rating) was created by John Hollinger of ESPN. PER takes into contributions almost all aspects of basketball including the minutes and pace of the game played. It is a step in a right direction and is getting accepted as a measure of player's current value. However this number has problems - it rewards inefficient shooting and can produce a distorted picture of some defensive specialists who produce few blocks and steals. Please find here a good analysis of problems with PER. I personally think that both efficiency and PER are both skewed towards offensive abilities of a player and are highly correlated with the ppg of players. Clearly a better model is still wanted in NBA.
Thankfully it does not use Gaussian distribution to predict the future value of the player so team managements can load up on a single player. But wait, some teams have already done that without any mathematical model. Eg., Eddy Curry with the Knicks till 2010, Gilbert Arenas with the Magic and Rashard Lewis with the Wizards are just examples of bad contracts. Thankfully there is the amnesty clause that came of the new CBA. Bad Contracts have one advantage though. It gives the owners a good excuse to come back to the table to discuss CBA and demand bigger piece of the revenue pie as reward for their own mistakes. I digress.
We already discussed baseball and how moneyball highlighted the use of analytics by a certain team in the sport. The book highlights the undervalued usage of the metric On-base Percentage. Please listen to this podcast that throws more light on it as I am not a big follower of baseball to provide good analysis.
Lets jump to cricket. A lot of data is collected in cricket, but most of it is centered around the batsmen or the offensive side of the game. Most Man of the Match (equivalent to MVP in American sports) awards go to batsmen. A bowler rarely gets the MVP award unless a player takes at least 4 wickets and the match is won, this too when there is no other big contribution by a batsmen. The value of a batsmen is usually measured by his batting average and the number of 100's and 50s he has scored. This to me is a very skewed metric. A batsmen that comes in the first three positions has a chance to play lot more balls and hence a chance to have better batting average and better chance at scoring more 100s and 50s. What we consider great batsmen come onto the crease at the first three positions. This however skews other important metrics like, how many wins did he contribute to, how many partnerships did he generate, how well did he rotate the bat, how many dot balls did he have, how many chances did he give away(how lucky he was on any given day) that the opposition failed to capitalize on. Similarly for a bowler, the metrics that are used are wickets taken and average runs per over given away. This again fails to measure the contribution to the win, the conditions in which he was playing, how many dot balls did he have(the more the better), how many good length balls did he bowl, did the bowler in tandem get any wickets etc. Fielding is another contribution that is given scant respect. No metrics exist on how much a fielder contributes to the win of a team. Other than who caught the ball when a player gets out, nothing about fielding is measured. A good thorough review of some concerns related to cricket stats can be found here.
With all this I have to conclude with the saying from a superhero nerd aka Spider Man comic strip - 'With Great powers come great responsibility'.
While nerds are making inroads into sports, they are making inroads into the fashion business with their looks. Look for athletes like Dwyane Wade, Lebron James, Kevin Durant who sport the nerdy look quite often. Kevin Durant has taken it a step further with a back pack in tango. Grantland has a feature on this new trend in NBA - The rise of the NBA nerd. More power to my peeps.
A few more links of interest can be found below.
Redistribution: Blocking the Revenge of the Nerds?
Who’s a Nerd, Anyway?
The beauty of the geek
Sloan Sports Analytics Conference Recap
Will Kuntz '06, Real Life MoneyBall "Scout"
Shane Battier - The No-Stats All-Star
Prof. Daniel Kahneman - Nobel prize winner for prospect theory
Reinforcement Learning and Investor Behavior
The Gambler's and Hot-Hand Fallacies: Theory and Applications
Recency: Hot-hands and the Gambler's fallacy
The hot hand belief and the gambler’s fallacy in investment decisions under risk
Success Rates of Traders
What Makes a Rogue Trader Tick?
Hot Hand in Sports
Option Traders Use (very) Sophisticated Heuristics, Never the Black–Scholes–Merton Formula
Warren Buffett on LTCM
Eight Days - The battle to save the American financial system
Friday, December 2, 2011
Fat fingering, flash crash and all the fun stuff called investing
I am not a stock trader, but I occasionally burn my fingers attempting to do just that. This post is a look into the rearview of my experience with trading in the stock market. It has been a while since I bought or sold into the market. I incurred severe losses in my attempts to make money in the stock markets during the years 2008 and 2009. I was long in 2008 and short in 2009. Yes, stupid right. Needless to say, I had better success at trading in a flea market. I wouldn't be writing this post if I made money in those years.
Date: May 6th, 2010.
Subject: Fat fingering could save a trade.
By Noon that day, the markets have lost about 5%. I had entered a trade the previous night to execute at $22/share. I don't remember the security nor do I remember the number of shares. So anyway, when I was taking a coffee at around 2:30 PM, a colleague mentioned that the market was tanking pretty bad. I also recieved a phone call from my friend to deliver the good news. I was worried that the trade I had entered was executed and deeply in red from the broad market tanking. One of the reasons for the markets to crash, I heard during that day, was that an unidentified futures trader had fat fingered a sell order for $5 Billion worth of securities while he meant only to palce $5 million worth of them. An extra zero never meant so much to so many people around the world like it did on that day. I went home and eagerly logged into my trading account to find how much loss I had incurred on my trade. Surprisingly, I did not see the security in my account. I checked the order status and it showed that the order was cancelled. I checked the trading range for the security to see if for some reason the secruity did not hit my buy price. The security did go to as low as 13 bucks. I reviewed my cancelled order to find that I had set my buy limit order at $12.00 and not $22.00 as I had intended. This casual mistake of mine kind of saved my day. However I did feel a tinge of disappointment because, had the security gone down to $12 and my order been executed, I would have made 33% on that day for my fat fingering error. How is that possible? When right after what is now called flash crash the market rebounded, recovering most of the losses between 2:30 PM to 3:00 PM. The security I was interested in buying rebounded to $16.00. While I was happy, I did not suffer a loss of about 30%, I was also unhappy that my mistake did not make me rich by 33%. Well the way my trades were going, the only way I was going to make money was by mistakes. Alas it was not meant to be.
Note: It was later revealed that the cause of the crash was not fat finger, but a sell algorithm that executed the sell order of S&P 500 futures. The report by SEC was be viewed here -http://www.sec.gov/news/studies/2010/marketevents-report.pdf.
So with that preview in mind, I have to go a bit earlier into my life of trading. Why did I get into this mess to begin with? It was that one odd year when for the first time in my life I discovered I may have to payback Uncle Sam on my tax returns. It turns out that I was being withdrawn less taxes in my paycheck and hence would have to pay back those taxes. One of the ways to avoid that was to open a traditional IRA account. So I did just that. This was 2008 and the market was tanking. Now opening an IRA account opened a whole new oppurtunity to prove to myself that I could make more money outside my profession.
I began reading books, a lots of them, by Benjamin Graham, John Bogle, Warren Buffett, even Suzy Orman. Since I began with books by value investors, I took a long only approach and stocks for life approach. Besides the word value in value investing kind of appealed to the way I approach life. So I did some screens for low P/E ratios, high dividends etc and put money in those. It was a time when commodities were bullish. I did not buy any when the market was going up as I felt they were expensive(read - I tricked myself into thinking like a value investor). So when the market began to crash, I began to buy them assuming there was capitulation and that I need to go in when the market was falling. I also did cost averaging as the securities were losing more and more. In 2008, the pit was bottomless. All the theories I had read were becoming useless and fear took over. I realized that times have changed and every recession is different. I also recognized that the market way ripe for shorting.
However I could not short since the account I was trading was an IRA account. I could not buy put options(which was the one way to short a market in an IRA) as my account was not setup for options trading. I could buy inverse etfs(that shorted the market), but since most inverse etfs are shorted on a daily basis, the gains from shorting the market were lost by the inherent defects of the etf. I had applied to change my account to allow option trading and opened a regular trading account with another broker. (Yes, more money and less restriction would fix everything and now I could go on to be a millionnaire shorting the market. The irony is that easy access to more money, hence leverage, and lax regulation were the causes of the current recession.)
I realized the lossess in my IRA account about the end of 2009 and began shorting the market with option puts. I also bought leveraged inverse etfs. With these moves and the economy still tanking, things turned around a bit in my account for some time though the losses were not completely recovered. From losses in thousands to have recovered within hundreds was a major achievement. I was euphoric and once on a phone call to a friend of mine said this "value investing has no place now. In this age investors have to be nimble". Clearly I was overconfident and not following my own statements.
The market turned around and I did not realize the gains in time. I failed to stagger my profits. Instead I was still stuck in the bear mode. I said to myself that the market was irrational, the fundamentals have not changed and hence it was only a matter of time before the market begins to tank again. It wasn't meant to be.
Weeks become months and market takes an ascent I havent seem before. I begin looking into technical analysis as everyone on the web was talking about it. It was also widely said that Hedge funds with their HFTs use largely technical analysis to make their trades. The S&P500 index hung around the 200MA for a few days and it gave me hope that my thesis could be right and the bear market was set to begin. Well, ever a contrarion indicator, the market broke through the 200 moving average and began it ascent with greater vigor. That was it for me; I took my losses, which were now more than when I began to short the market.
I stayed away from trading the market for about 6 months. Infact, I did not get back into it until 2010. Well the rally was slow in 2010 compared to 2009 and 2011 was deja vu all over again. Only the player now is Europe and not US and I am long the market only this time in my 401K accounts. I cant do much there which probably is a good thing.
In all this, I tried almost everyt trick. Well! not everything; I havent developed an algorithm for automatic trading with back testing. Other than that I have done everything and for every recommendation I have proof that they wont work. I attended webinars, earnings reports(live as well as transcripts), did screeners for etfs and mutual funds. Bought etfs, straight and leveraged, long and short. I did market orders, limit orders, stop loss orders, trailing limit orders. I did options both calls and puts. I did not go into covered calls, spreads and other exotic option trading. Nor did I deal with forex trading and futures trading, well not directly(but did so through etfs that use forex and futures trading). In all this the only thing that I learned was that, there is no formula for successful trading. A recommendation by a successful trader/investor is no guarantee for success. Infact it can be guarantee for failure as was in my case.
With so much rumination on things that have failed, I feel obligated to disclose what worked for me.
1. Buy No Load, No Transaction Fee Mutual Funds only. Avoid transaction fees in anyway you can.
2. Avoid futures derived commodity etfs, leveraged etfs, short etfs, options unless you know clearly how these are valued and how they work.
3. Buy Big Cap dividend players.
4. Buy index funds or index based etfs.
5. If you can pick a bottom or if you are sure the bottom has passed, buy securities that are oversold due to certain events. For Eg., BP was a good pick a few months after the oil spill. In these cases, the markets sells more not knowing what the impact would be of the event.
6. Realize your gains when they are. There is merit to the statement 'ride your winners', but it is only a matter of time before your winners become losers. So try layering your sell orders when you have profits.
7. Cut your losses at the earliest. Have some percentage and time based rules for getting out. Follow them strictly.
Of the above, the last rule is most difficult to implement. I have most trouble implementing this rule. I still have a few securities that violate this rule and are sitting blood red in my account as of now. The problem for me is that, the securities that I have sold have done a volte face as soon as I have sold. Also losses are difficult to realize. You hold on to the losers in a hope that things may change as soon as you sell them. Sometimes you are waiting for the market to turn around to minimize the losses. You say to yourself, this security is oversold. Let it turn around a bit and I will sell. When they do, you dont know when to sell. Your mind plays tricks. Do you let your mind rule your trades or do you let the rules mind your trades. Experienced traders say it should be your rules.
Date: May 6th, 2010.
Subject: Fat fingering could save a trade.
By Noon that day, the markets have lost about 5%. I had entered a trade the previous night to execute at $22/share. I don't remember the security nor do I remember the number of shares. So anyway, when I was taking a coffee at around 2:30 PM, a colleague mentioned that the market was tanking pretty bad. I also recieved a phone call from my friend to deliver the good news. I was worried that the trade I had entered was executed and deeply in red from the broad market tanking. One of the reasons for the markets to crash, I heard during that day, was that an unidentified futures trader had fat fingered a sell order for $5 Billion worth of securities while he meant only to palce $5 million worth of them. An extra zero never meant so much to so many people around the world like it did on that day. I went home and eagerly logged into my trading account to find how much loss I had incurred on my trade. Surprisingly, I did not see the security in my account. I checked the order status and it showed that the order was cancelled. I checked the trading range for the security to see if for some reason the secruity did not hit my buy price. The security did go to as low as 13 bucks. I reviewed my cancelled order to find that I had set my buy limit order at $12.00 and not $22.00 as I had intended. This casual mistake of mine kind of saved my day. However I did feel a tinge of disappointment because, had the security gone down to $12 and my order been executed, I would have made 33% on that day for my fat fingering error. How is that possible? When right after what is now called flash crash the market rebounded, recovering most of the losses between 2:30 PM to 3:00 PM. The security I was interested in buying rebounded to $16.00. While I was happy, I did not suffer a loss of about 30%, I was also unhappy that my mistake did not make me rich by 33%. Well the way my trades were going, the only way I was going to make money was by mistakes. Alas it was not meant to be.
Note: It was later revealed that the cause of the crash was not fat finger, but a sell algorithm that executed the sell order of S&P 500 futures. The report by SEC was be viewed here -http://www.sec.gov/news/studies/2010/marketevents-report.pdf.
So with that preview in mind, I have to go a bit earlier into my life of trading. Why did I get into this mess to begin with? It was that one odd year when for the first time in my life I discovered I may have to payback Uncle Sam on my tax returns. It turns out that I was being withdrawn less taxes in my paycheck and hence would have to pay back those taxes. One of the ways to avoid that was to open a traditional IRA account. So I did just that. This was 2008 and the market was tanking. Now opening an IRA account opened a whole new oppurtunity to prove to myself that I could make more money outside my profession.
I began reading books, a lots of them, by Benjamin Graham, John Bogle, Warren Buffett, even Suzy Orman. Since I began with books by value investors, I took a long only approach and stocks for life approach. Besides the word value in value investing kind of appealed to the way I approach life. So I did some screens for low P/E ratios, high dividends etc and put money in those. It was a time when commodities were bullish. I did not buy any when the market was going up as I felt they were expensive(read - I tricked myself into thinking like a value investor). So when the market began to crash, I began to buy them assuming there was capitulation and that I need to go in when the market was falling. I also did cost averaging as the securities were losing more and more. In 2008, the pit was bottomless. All the theories I had read were becoming useless and fear took over. I realized that times have changed and every recession is different. I also recognized that the market way ripe for shorting.
However I could not short since the account I was trading was an IRA account. I could not buy put options(which was the one way to short a market in an IRA) as my account was not setup for options trading. I could buy inverse etfs(that shorted the market), but since most inverse etfs are shorted on a daily basis, the gains from shorting the market were lost by the inherent defects of the etf. I had applied to change my account to allow option trading and opened a regular trading account with another broker. (Yes, more money and less restriction would fix everything and now I could go on to be a millionnaire shorting the market. The irony is that easy access to more money, hence leverage, and lax regulation were the causes of the current recession.)
I realized the lossess in my IRA account about the end of 2009 and began shorting the market with option puts. I also bought leveraged inverse etfs. With these moves and the economy still tanking, things turned around a bit in my account for some time though the losses were not completely recovered. From losses in thousands to have recovered within hundreds was a major achievement. I was euphoric and once on a phone call to a friend of mine said this "value investing has no place now. In this age investors have to be nimble". Clearly I was overconfident and not following my own statements.
The market turned around and I did not realize the gains in time. I failed to stagger my profits. Instead I was still stuck in the bear mode. I said to myself that the market was irrational, the fundamentals have not changed and hence it was only a matter of time before the market begins to tank again. It wasn't meant to be.
Weeks become months and market takes an ascent I havent seem before. I begin looking into technical analysis as everyone on the web was talking about it. It was also widely said that Hedge funds with their HFTs use largely technical analysis to make their trades. The S&P500 index hung around the 200MA for a few days and it gave me hope that my thesis could be right and the bear market was set to begin. Well, ever a contrarion indicator, the market broke through the 200 moving average and began it ascent with greater vigor. That was it for me; I took my losses, which were now more than when I began to short the market.
I stayed away from trading the market for about 6 months. Infact, I did not get back into it until 2010. Well the rally was slow in 2010 compared to 2009 and 2011 was deja vu all over again. Only the player now is Europe and not US and I am long the market only this time in my 401K accounts. I cant do much there which probably is a good thing.
In all this, I tried almost everyt trick. Well! not everything; I havent developed an algorithm for automatic trading with back testing. Other than that I have done everything and for every recommendation I have proof that they wont work. I attended webinars, earnings reports(live as well as transcripts), did screeners for etfs and mutual funds. Bought etfs, straight and leveraged, long and short. I did market orders, limit orders, stop loss orders, trailing limit orders. I did options both calls and puts. I did not go into covered calls, spreads and other exotic option trading. Nor did I deal with forex trading and futures trading, well not directly(but did so through etfs that use forex and futures trading). In all this the only thing that I learned was that, there is no formula for successful trading. A recommendation by a successful trader/investor is no guarantee for success. Infact it can be guarantee for failure as was in my case.
With so much rumination on things that have failed, I feel obligated to disclose what worked for me.
1. Buy No Load, No Transaction Fee Mutual Funds only. Avoid transaction fees in anyway you can.
2. Avoid futures derived commodity etfs, leveraged etfs, short etfs, options unless you know clearly how these are valued and how they work.
3. Buy Big Cap dividend players.
4. Buy index funds or index based etfs.
5. If you can pick a bottom or if you are sure the bottom has passed, buy securities that are oversold due to certain events. For Eg., BP was a good pick a few months after the oil spill. In these cases, the markets sells more not knowing what the impact would be of the event.
6. Realize your gains when they are. There is merit to the statement 'ride your winners', but it is only a matter of time before your winners become losers. So try layering your sell orders when you have profits.
7. Cut your losses at the earliest. Have some percentage and time based rules for getting out. Follow them strictly.
Of the above, the last rule is most difficult to implement. I have most trouble implementing this rule. I still have a few securities that violate this rule and are sitting blood red in my account as of now. The problem for me is that, the securities that I have sold have done a volte face as soon as I have sold. Also losses are difficult to realize. You hold on to the losers in a hope that things may change as soon as you sell them. Sometimes you are waiting for the market to turn around to minimize the losses. You say to yourself, this security is oversold. Let it turn around a bit and I will sell. When they do, you dont know when to sell. Your mind plays tricks. Do you let your mind rule your trades or do you let the rules mind your trades. Experienced traders say it should be your rules.
Labels:
Investing,
stock market,
trading
Thursday, July 28, 2011
A debt crisis of my own
While the USA senate is waging a debate on debt ceiling (more details here), I am working on resolving a crisis of my own with my debt . To some it may be small and to some a matter of ridicule, but to me this is gaining big on the guilt land. Please continue to read as I narrate my story.
Recently in one of my evening commute back home, I was involved in a fender bender accident. I wont go into the details of it as it is not much relevant to what I am about to say. Besides, Big Brother Gordon* is watching the web 2.0 saying 'you have the right to remain silent, whatever you say(post) on social media can and will be used against you'.
After the accident, making sure the other passenger was fine and the insurance information exchanged, I set off on my much delayed commute back to home. It was about 7:30 PM now and had been three hours since I started from work. I was only few miles from work with many more miles to go. It was a really bad day, with overcast conditions all day and incessant downpour at that moment(to contrast the past two weeks are extremely hot and I long for the rain like the other day I am narrating here). Basically it was a perfect weather to cause myself to dig into accident induced sorrow and self pity.
I began to think all sorts of things; it was the punishment for the poor decision I made. I moved from this neighborhood(where I was driving now) about a month ago and never had a problem until now. It was a busy road that winds past the public library. I thought of the library about a mile away and realized the whole cause of the this messy situation. The library has a used book sale in a small room at the back. A week before I moved, I had bought three books there. While checking them out, I handed a $20 bill to the librarian there. The guy said he did not have the change to break my $20 bill. So to date I owed them $1.25 for the three books - two adult paper backs $0.50 each and one kids book $0.25. He had asked me to pay when I return. Return I never did. Since the day of purchase, lot many things were to be taken care of and I lost track of the library and the money I owed them. Also the library was quite far away from my current commute.
So now that fate had me driving through those roads, I recollected that I owed the library $1.25. The goddess of learning has decided to teach me a lesson. I decided to pay for the books and possibly do a donation for the library. As I came on this decision to atone for my bad karma, I was at the library now. To my dismay the library was closed. I forgot that the library closes at 5:30 PM and it was close to 8: 00 PM now. So I kept driving past the library while watching the closed sign on the library. The two glass windows appeared like eyes and the branches of the tree in the front waved to and fro towards the library entrance doors. It was as if the library was gesturing "I am watching you" through the trees and the windows. It creeped me out.
I drove past the library, feeling dejected. A few miles passed in slow motion with the traffic being still heavy. I decided to take a break and get some coffee. I bought myself a soup and medium sized coffee. It helped me relax and half an hour later I was on my way home. It was about 9:30 PM. I reached home at about 10:30 PM and the kid was fast asleep. Suits me for bargaining the time with family for chores.
Here is what happened on that day between 4:30 PM(the time I left work) and 7:30 PM. I set out from work without an umbrella on a day with rain forecast. The sky was cloudy when I came out of the building. By the time I reached my car in the parking garage(couple blocks away) the rain began to pour. I set out in that bad weather to drop off a cable and Internet modem I was renting from my previous cable provider. It had been more than a week since I shut off my account and I received a reminder from my Cable service provider to return the equipment. The service center was deep in the city and I had to go through severe congestion and roads with traffic lights all over. I reached there 5 mins late at 5:35 PM. The security guard was signalling me away shouting that the building was closed. With drooped shoulders, I sat back in the car and began my drive home.
The drive from the service center to the nearest interstate turned out to be as bad as my previous segment and it was 6:30 PM when I saw the interstate traffic at standstill. I sighed and decided that I will take a 30-40 minute break and start again. I drove past the ramp to the interstate, which was heavily congested and slowing moving forward like a slug, and came by a small mall. There was a bank next to the mall and I have an account there. Thinking it would be good way to kill time, I stood in line for customer service to update my address in the accounts I had with the Bank. Was that stupid or what. The customer service needed a utility bill or a lease with my new address on it. I had neither of them on me. This after I waited for half an hour. I was depressed and began my drive back home at about 7:10 PM. I came close to ramp to the interstate and the traffic was still congested. The rain pour was incessant, I skipped the interstate and took the local route home. Fifteen minutes or so later I was in a fender bender.
About a week passed. I was driving home after work and few miles later the traffic came to a stand still again. I was close to the same exit as that on the day of accident. I hesitantly took the exit and drove through the same roads that I took on the rainy day. I drove past the intersection where the accident happened. The rainy day image popped in my brain for a second, but I was shrugged it off. I drove past the library, but it was closed again. The trees and the library windows were reminding me of the debt I owed to the library. This I could not shrug off. I have to take this exit again sometime soon to repay my debt to the library; all of a buck and quarter.
Rational Reasoning: The cause(s) of the situation I found myself in could be two fold. The first was the bad weather. I should have waited the rain out somewhere. But I didn't. It is weird how bad weathers makes humans make bad decisions. It is a common scene for roads to be filled with cars and grocery stores filled with people during times of bad weather. Second, I was trying to recoup some of the lost time by squeezing in some productive work out of it. So instead of reasoning out the rational way, my mind was playing drama filling me with guilt over a $1.25 that had no relation to the incident. But who said humans make rational decisions.
*Gordon is the first name of Gordon Gekko(played by Michael Douglas) in the famous Hollywood movie Wall Street. The last name rhymes with the mascot of a famous insurance company.
Recently in one of my evening commute back home, I was involved in a fender bender accident. I wont go into the details of it as it is not much relevant to what I am about to say. Besides, Big Brother Gordon* is watching the web 2.0 saying 'you have the right to remain silent, whatever you say(post) on social media can and will be used against you'.
After the accident, making sure the other passenger was fine and the insurance information exchanged, I set off on my much delayed commute back to home. It was about 7:30 PM now and had been three hours since I started from work. I was only few miles from work with many more miles to go. It was a really bad day, with overcast conditions all day and incessant downpour at that moment(to contrast the past two weeks are extremely hot and I long for the rain like the other day I am narrating here). Basically it was a perfect weather to cause myself to dig into accident induced sorrow and self pity.
I began to think all sorts of things; it was the punishment for the poor decision I made. I moved from this neighborhood(where I was driving now) about a month ago and never had a problem until now. It was a busy road that winds past the public library. I thought of the library about a mile away and realized the whole cause of the this messy situation. The library has a used book sale in a small room at the back. A week before I moved, I had bought three books there. While checking them out, I handed a $20 bill to the librarian there. The guy said he did not have the change to break my $20 bill. So to date I owed them $1.25 for the three books - two adult paper backs $0.50 each and one kids book $0.25. He had asked me to pay when I return. Return I never did. Since the day of purchase, lot many things were to be taken care of and I lost track of the library and the money I owed them. Also the library was quite far away from my current commute.
So now that fate had me driving through those roads, I recollected that I owed the library $1.25. The goddess of learning has decided to teach me a lesson. I decided to pay for the books and possibly do a donation for the library. As I came on this decision to atone for my bad karma, I was at the library now. To my dismay the library was closed. I forgot that the library closes at 5:30 PM and it was close to 8: 00 PM now. So I kept driving past the library while watching the closed sign on the library. The two glass windows appeared like eyes and the branches of the tree in the front waved to and fro towards the library entrance doors. It was as if the library was gesturing "I am watching you" through the trees and the windows. It creeped me out.
Here is what happened on that day between 4:30 PM(the time I left work) and 7:30 PM. I set out from work without an umbrella on a day with rain forecast. The sky was cloudy when I came out of the building. By the time I reached my car in the parking garage(couple blocks away) the rain began to pour. I set out in that bad weather to drop off a cable and Internet modem I was renting from my previous cable provider. It had been more than a week since I shut off my account and I received a reminder from my Cable service provider to return the equipment. The service center was deep in the city and I had to go through severe congestion and roads with traffic lights all over. I reached there 5 mins late at 5:35 PM. The security guard was signalling me away shouting that the building was closed. With drooped shoulders, I sat back in the car and began my drive home.
The drive from the service center to the nearest interstate turned out to be as bad as my previous segment and it was 6:30 PM when I saw the interstate traffic at standstill. I sighed and decided that I will take a 30-40 minute break and start again. I drove past the ramp to the interstate, which was heavily congested and slowing moving forward like a slug, and came by a small mall. There was a bank next to the mall and I have an account there. Thinking it would be good way to kill time, I stood in line for customer service to update my address in the accounts I had with the Bank. Was that stupid or what. The customer service needed a utility bill or a lease with my new address on it. I had neither of them on me. This after I waited for half an hour. I was depressed and began my drive back home at about 7:10 PM. I came close to ramp to the interstate and the traffic was still congested. The rain pour was incessant, I skipped the interstate and took the local route home. Fifteen minutes or so later I was in a fender bender.
About a week passed. I was driving home after work and few miles later the traffic came to a stand still again. I was close to the same exit as that on the day of accident. I hesitantly took the exit and drove through the same roads that I took on the rainy day. I drove past the intersection where the accident happened. The rainy day image popped in my brain for a second, but I was shrugged it off. I drove past the library, but it was closed again. The trees and the library windows were reminding me of the debt I owed to the library. This I could not shrug off. I have to take this exit again sometime soon to repay my debt to the library; all of a buck and quarter.
Rational Reasoning: The cause(s) of the situation I found myself in could be two fold. The first was the bad weather. I should have waited the rain out somewhere. But I didn't. It is weird how bad weathers makes humans make bad decisions. It is a common scene for roads to be filled with cars and grocery stores filled with people during times of bad weather. Second, I was trying to recoup some of the lost time by squeezing in some productive work out of it. So instead of reasoning out the rational way, my mind was playing drama filling me with guilt over a $1.25 that had no relation to the incident. But who said humans make rational decisions.
*Gordon is the first name of Gordon Gekko(played by Michael Douglas) in the famous Hollywood movie Wall Street. The last name rhymes with the mascot of a famous insurance company.
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