Monday, May 28, 2012

Facebook, Greed and Responsibility

On May 18 Facebook held its initial public stock offering (IPO).  By the following Tuesday, the value of the stock had fallen from $38 per share to $31 per share, a loss of 18%.  This was accompanied by rumors that an analyst from Morgan Stanley, one of the underwriters, had shared a new, less optimistic analysis with only a limited number of clients; it was not shared with the general public.

The news broke a couple of days later that three investors were suing Morgan Stanley and Facebook.  One interviewed in this article is a professor at Florida Atlantic University.  He describes IPOs as tricky but adds, "this one had a lot of glamour, had a lot of interest. It has a lot of users. I thought it'd be a pretty good investment."  So he used his E*TRADE account to buy 1800 shares and potentially lost a lot of money.  (It isn’t lost until he sells the stock.)

News of a lawsuit always strikes me as a good place to look for evidence of lapses in personal responsibility, the desire to blame your problems on another and not as the consequences of your own behavior.  This one made it easy.  Here is a college professor, an educated man.  He did not fall off the last turnip truck and fall prey to evil conmen.  He understood and admitted that IPOs are tricky.  He understood what he was investing in.  It’s not like Facebook’s business model is some kind of mystery.  News reports prior to the IPO were filled with questions about how Facebook was going to increase its profitability to justify the price and how overvalued the stock was in terms of its current price-earnings ratio.  In addition, no one twisted his arm or tried to talk him into it.  E*TRADE, after all is an on-line, discount broker where representatives don’t call with the latest stock tips trying to pressure you to buy.  But he decided to plunk down over $77,000 (plus the small commission) on the basis that it would be a good investment because it “had a lot of glamour, had a lot of interest...[and] a lot of users.”  When results came in a few days later, he was disappointed and upset.

When it comes to the stock market, I distinguish between investors and traders.  Investors are in it for the long term, making investments and riding them out.  Traders look for a short-term profit – think “day trader.”  The above are not the actions of an investor.  Interest, glamor and popularity have nothing to do with the long-term performance of a company or its stock.  People who were lured in on this premise are victims of their own desire to make a quick buck or to get in on the ground floor of a possibly high-flying stock.

Investing is based on risk/reward.  Those who expected a big reward without the corresponding risk were being naïve or greedy and became victims of their own mindset.  Responsible individuals take credit for their successes but also their mistakes.  They don’t try to shift the blame, legally or otherwise.

Disclosure:  I'm confident (but not thrilled) that I do own shares of Facebook and JP Morgan Chase, but only through a Total US Stock Market Index mutual fund that owns shares of every public company, not through individual stock purchases.

Friday, May 25, 2012

Perspective/Critical Thinking – What’s the Difference?

A week ago I presented outrageous magazine covers as an example how marketers and the media try to use slip-ups in perspective against us.  On Friday I discussed earthing to show how we must be more skeptical, practice critical thinking.  Is there really a distinction?  Both perspective and critical thinking errors seem to result from acting based on emotional responses – thinking with our hearts rather than with our heads.

Although they are similar and can sometimes overlap, there are differences.  When you make a poor spending decision, it could be the result of poor perspective, buying something you don’t really need, acting contrary to your core values or not maintaining a sense of moderation.  Likewise poor spending decisions may result from inadequate critical thinking, buying something based on imaginary benefits or on a sales pitch that is logically flawed.

Those with poor perspective arrive at a store to battle, sometimes physically, over the limited edition footwear, yoga pants, smartphone or latest videogame.  I recently saw an advertisement recommending that you buy the new videogame at midnight and then call in sick to work the next day.  Being among the first to have a particular game is more important than having a job in a down economy?  Sitting out all night for tickets to see your favorite performer ranks higher than spending that time and money on more important things? Are our actions consistent with what we really value or say we value?  Do we have a sense of gratitude – appreciation for what we have rather than constantly longing for what we lack?

Those who fail in critical thinking spend money in pursuit of unproven products.  I listed energy wristbands (on January 13, 2012) in this category but also include anything that claims to be better merely because it is labeled as green, all natural, organic, pure, chemical-free or other such term.  My faith in Americans is challenged when I read an article about the government fining the Skechers Company for misleading people by claiming their shoes would magically make them slimmer or improve their muscle tone.  Seriously, people were deceived?  When I was young, PF Fliers claimed that they would make me run my fastest and jump my highest, but even at ten years old I knew they were just trying to sell shoes!

Perspective relates to poor assumptions about what is important or what we need vs. what we want.  Critical thinking relates to lack of adequate reflection or to being insufficiently skeptical.  Both lead to foolish choices, one from impulse and the other from naiveté, wishful thinking, or gullibility.

Monday, May 21, 2012

Earthing - Keep Your Feet on the Ground

When I read about this last week, I could only think, “Where has people’s critical thinking gone?  Earthing, proclaimed as “the greatest health discovery ever” and “right up there with the discovery of penicillin,” is the practice of walking outside barefoot or in some other way increasing contact with the earth to allow us to absorb free electrons from the earth’s surface leading to improved health.  There is a detailed explanation of how this works along with – you guessed it! – lots of endorsements.

How many times have I repeated that endorsements or wonderful stories are not proof of effectiveness nor is selling supposed remedies as ancient wisdom, old knowledge rediscovered, or the unlocking of some secret?  When I read this, several questions immediately came to mind.  Why are the earth’s electrons any different from other free electrons?  Why did our ancient ancestors who had more contact with the earth have a much shorter life expectancy?  Why don’t our doctors tell us to walk outside barefoot more often – some kind of conspiracy to withhold the information or are they just tired of giving tetanus shots?  If electrons from the earth enter a body so easily, why can’t you slowly drain a flashlight battery by holding both ends between your fingers?  Where is the research?

I actually did find some research.  Here is one paper describing a particular study.  It had 12 participants.  The researchers grounded their beds and measured cortisol levels as well as participant reports of pain, stress and sleep dysfunction.  This seems like pretty shabby experimental design.  How were the 12 chosen?  Such a small sample size limits the statistical validity.  Where was the control group and “double-blind" setup to guard against placebo effect?  Self-reporting is prone to error.  This isn’t even in the same league as FDA requirements for any approved treatment.  It’s almost like getting 12 people together for an endorsement party.  Other studies are cited, but to what end?  Their website lists 13 bullet point benefits and implies that it's just the tip of the iceberg.  Snake oil, anyone?

The disclaimer on the site is most telling:  Products and information on this site are not intended to diagnose, treat, cure, or prevent any disease.  Of course not, that would probably be illegal.  (I don't doubt their sincerity, since everyone just walking around barefoot would fit their theory and not profit them a dime. but sincerity is never proof of validity.)  In any case, they strongly imply throughout that health benefits abound while making it easy to order their $60 mats, $200 kits and $300 bed sheets. 

One hundred dollars here, one hundred dollars there – it all adds up -- and a non-skeptical, non-critical thinking society then finds itself wondering how can I afford to retire or why am I part of a $1 trillion college debt crisis?

Friday, May 18, 2012

Hype on the Newsstand

You can’t judge a book by its cover, the old saying goes; this could be a motto for the dimension of perspective.  External appearances should count for less than the true quality found within, whether it be a book, a person or a product.

Apparently this saying is not only old, but is becoming obsolete.  Just Google “appearance discrimination” and you will learn about how better looking people are more likely to get a job, tend to be paid more, and even get lighter sentences in court.  When people review the same book or article accompanied by false pictures of the author, one more attractive than the other, the picture alone sways their opinion of how interesting and well written it is.

This type of error, judging on appearances, is not new.  Surely it’s partly genetic and has been around forever.  The problem is that the lure of a pretty face, fancy packaging or slick advertising often leaves us with a product we don’t need and a feeling of regret along with the resultant consequences of another poor decision.  To compound the problem, artists and advertisers have found that shocking or controversial images arouse our curiosity in a similar way. 

This issue comes to mind this week as Time and Newsweek seem to be engaged in a contest over which can have the most controversial or outrageous cover.  Regardless of the actual cover designs or messages, what does this tell us about our society?  Have we become so numb to the ordinary hype and overall noise in our lives that it’s necessary to continually up the ante?  This is not an isolated example.  So many marketers and media outlets, not just magazines, overwhelm us with warnings, outrageous claims and overall edginess just to get us to tune them in and prefer their product over others. Where does it all end?

It ends when we start exercising more perspective, looking for the substance and real value, not being drawn in by the hype, the outrageous, the superficial or by the controversial just for the sake of controversy.

Monday, May 14, 2012

Obesity Epidemic and the Food Police

One week ago I wrote about correlation and how it can go wrong by assuming a relationship between two outcomes that may not be valid.  An example given was the common occurrence of both gum disease and heart problems in the same person, which turn out to be not necessarily related as cause and effect.

There is a similar danger with extrapolation, taking a set of data for some time period and projecting it into the future to predict changes.  Extrapolation can be very tricky and is often misleading when all factors are not accounted for or are poorly understood.  One example was given in my comments on climate change (April 27, 2012) where one of the main proponents now says that perhaps he overstated his case.  (Interestingly,  he says he would not have changed his original prediction because that’s the kind of hyperbole that sells books.)  As another quick example consider recent warnings about five-dollar gasoline for this summer that have now been revised downward.  Extrapolation can be dangerous.

Early last week all the news agencies and networks blasted us with dire predictions by the Centers for Disease Control and Prevention (CDC) that the obesity epidemic continues and that 42% of Americans will be obese by 2030.  There are several reasons not to panic.  First, this is just another extrapolation, and we know how unreliable they can be.  Second, it’s something that can be controlled through behavior, but not everyone agrees about that.

There are many examples available of how people can change their behavior and successfully lose weight (including a reality TV show).  Here is an interview with a British actress from last summer.  Pauline Quirke was grossly overweight.  The article refers to her weight in stone (abbreviated st, which equals 14 pounds) so I’ll do the conversion.  In early 2011 she weighed 272 pounds but lost around 100 pounds at the time of the article and is aiming to lose another 20 – and keep it off.  Her motivation came from having a hip replacement before she was 50 years old and not wanting another.  Regardless of motivation, it’s possible to lose weight and keep it off.  If enough Americans are determined to do it, we can make liars of the CDC and be better off for it.

More disturbing though is this article that followed near the middle of last week asserting that it’s not our fault, that we can’t do anything about it.  We are victims of the society and the way our culture has developed.  People have been told about diet and exercise for years; so various parties have given up on voluntary behavior change, instead considering a bunch of heavy-handed political solutions involving, among other things, taxes, tax incentives and more regulations and requirements for schools.  Can you see how these ideas become a direct attack on our freedom?  I guarantee that this will happen (and has happened in the past) each time we don’t take responsibility.  If we don’t fix it ourselves, others will step in with their mandates, programs and artificial incentives, excusing this outside interference as being in the interest of public health.  The choice is clear on this and so many other issues - start doing for ourselves or have "help" inflicted on us.

Friday, May 11, 2012

This Really Works!

This is my 100th blog – 2 per week for 50 weeks.  In each I have discussed the direction of the country by relating our problems to faulty behavior in the five key categories.  Recently I noticed a couple of articles reinforcing this belief.

On December 30, I wrote “Build a Fence” arguing that the approach to illegal immigration was not to spend a lot of money trying to wall it off, but to find ways to lower incentives for people to come to the US illegally.  In April I find an article about the drop in illegal immigration tied to a less vibrant economy and to stricter enforcement, two things that lower the incentive.  (There was no mention of having a better fence.)

On April 20, I wrote “Healthcare Cost” enumerating at least 8 reasons for the rise in costs and elaborating on two of them.  One was the variation in services among providers and pure, somewhat arbitrary pricing differences.  I argued that the system must be more akin to an automobile check up where you know what to expect and get a cost estimate as opposed to the current system of somewhat secretive negotiations between care providers and your insurance. The following week, the headline from AP was:  Medical sticker shocks: ‘No method to the madness’ telling how the system is broken and that there is no way to explain vastly different costs for the same basic medical procedure.

I am getting to these solutions not because of any particular genius on my part (though I’d like to think so), but because the model I am using works.  Behavior has consequences, and individual behavior accumulates, leading to societal consequences.  Look at what you don’t like about America and trace it back to faulty decisions and detrimental actions and habits of our society in the five dimensions:  discipline, understanding the economic cycle, critical thinking, perspective and responsibility.  If we want to find solutions we will look for them not from the government or other big institutions, but here in individual behavior and posted on these pages twice each week.  So tell your friends, tell your enemies, spread the word!

Monday, May 7, 2012

Critical Thinking - Understanding Correlation

No, this is not a statistics lesson, but here are a couple of examples to help better explain what is often falsely implied or misrepresented in the news.

Both articles happen to be about gum disease.  The first tells that the nearly-century-old belief that gum disease causes heart problems has been overturned.  “[T]here is no conclusive evidence that gum disease causes heart attacks and strokes, or that treating gum disease will improve heart disease…”  They don’t know yet why the two frequently occur together.  It could very well be that some unhealthy habits or lifestyle choices cause both.  When two events or conditions happen together, that’s not the end of the story.  The next step is to understand how and why A causes B or B causes A.  Perhaps they have a common cause.  Perhaps it’s just a statistical fluke.  In this case they admit that they don’t know why and are spreading the news in an attempt to correct the earlier erroneous conclusion.

The second article is about a correlation between obesity and gum disease.  Studies indicate that obese people have twice the likelihood of losing their teeth due to periodontal disease.  The fifth paragraph begins, “Why might this be? The researchers speculate…”  You see, the correlation does not mean causation.  They must find a link, explaining why they vary together and showing how one causes the other.  Until they do, it is unfair, possibly dishonest, to make a cause-effect connection.

So when the news media, a politician or an advertiser presents you with evidence that two things frequently occur at the same time or that they vary together, don't immediately buy the argument that the two are related.  Ask for more information.  How are they related?  What is the mechanism that makes one cause the other?  People trying to make their case often skip this step deeming it unnecessary, but they are wrong to do so.

Friday, May 4, 2012

Healthcare and Behavior

The topic of healthcare costs is so large that it takes many short essays to even scratch the surface.  On Monday, April 16, 2012, I listed 8 categories – reasons for higher healthcare costs that should be addressed to solve the problem.  These were explained further on that date and at other times including on the following Friday, April 20.  I did, however, leave out one very important point, that a major influence on healthcare costs is how well we take care of ourselves – yes, individual behavior.

This was reinforced as I read in the past few days articles about:  13,000 newborns needing additional hospitalization because they are born addicted to painkillers; more teens requiring drugs for obesity-related diabetes; and almost half the people treated in emergency rooms being under the influence of drugs or alcohol.

Remember, I have argued on several other occasions that the solutions to our problems, our ability to overcome the so-called crises challenging our society, come not from big government programs or from punishing the big, evil corporations, but from adopting more positive behavior in one or more of the five key dimensions.  Applying this same approach to the problem of rising healthcare costs we see that improved behavior in responsibility and discipline goes a long way toward solving it.  Take responsibility for our health and then do something about it. 

Remember back on August 5, 2011, I pointed out that all legitimate health advice we receive from the media can be reduced to a few basic habits, but we see them over and over presented as “news.”  Likewise reports about preventing or lessening the impact of many diseases include the same advice:  eat right, stay active, get enough rest, quit smoking, drink alcohol in moderation, avoid soft drinks and snack food, etc.  It’s not rocket science.  By taking individual responsibility, we improve our own health, reducing overall healthcare spending.  And reducing the demand for anything usually has a favorable effect on price.

Another recent article about more people walking shows that we are off to a good start. We can do it and don’t have to wait for any new programs or laws.