1. Wikipedia Tourism #18

    March 30, 2009 by Craig

    From Cousin:

    In 2004, genealogists discovered that U.S. Presidential candidates George W. Bush and John Kerry shared a common ancestral couple in the 1500s. It was reported that the two men are sixteenth cousins, thrice removed. However, the two are in fact ninth cousins, twice removed. Also, in 2007, it was revealed that then-U.S. vice president Dick Cheney and then-Democratic presidential candidate Barack Obama are eighth cousins.

    That’s right folks: Obama (ie: the Black Guy) and Cheney are more closely related than Bush and Kerry (two Yalies).


  2. Mark-to-Market for Dummies

    March 1, 2009 by Craig

    Marco talks about the economy and asks about a policy called “Mark-to-Market“:

    One of the laws that might get changed is mark-to-market accounting were you have to declare assets at the current market value. I am no expert on this–but I am told that if we allow you to declare some of these complex financial instruments at “what you think they are worth” we could get good mileage out of that because it would remove uncertainty. I am not an expert–and I don’t fully understand the value here. I’m sure someone can explain it.

    I’m no expert either, but I have a very good lay understanding of the issue, so I figured I’d write up my explanation.

    There’s two major factors used to value any particular debt at any given time. The first and simplest is it’s “present value“. This is the payoff amount adjusted for the interest paid. The math for this is well-understood. Example time: let’s say that you promise to pay $100K in 10 years. If I want a 5% return on my investment in you, I can run the numbers and find that this deal is worth about $60K as of today… that is, if I gave you $60K now and you gave me $100K in 10 years, I would have made 5% return on my investment.

    This doesn’t take into account risk though. If you fail to come through on your promise to pay, then I lose everything. I have to take this into account when determining the value of this loan to you. If I think there’s a 50% chance you’ll stiff me entirely, then I might reduce my “expected value” of this loan by 50%: I’ll only give you $30K instead of $60K for the same $100K/10 year promise.

    Determining risk is where the difficulty comes in. What’s your chance of default? I pulled 50% out of thin air; when it comes to real life the factors involved are numerous, complex, and often unknown. This is where financial magic (and potential for profit) comes in.

    Let’s say that Alice knows that you’re about to inherit $1M and can easily pay off your debt. She might figure your risk of default is only 10%, compared to my 50%. Accordingly, she might value the loan at $54K instead of my $30K. She can then offer to buy the loan from me for $42K. This looks like a good deal to both of us; I get $12K over my “expected value” of the loan and get some risk off my books. Alice gets a relatively reliable deal for $12K less than she thinks it’s actually worth.

    Or, you might have Bob who knows you have cancer and will need to spend your money on medical bills. He figures your chance of default is 90%. He values the loan at $6K. If I demand $30K to sell the loan, he doesn’t go near it with a 10 foot pole.

    Mark-to-market means that I, as the lender, have to value a loan at what everyone else will pay for it, regardless of what I think the real expected value/risk is. If Alice and Bob both make bids on my loan for $42K and $6K, I can record a $12K increase in the value of my asset even if I decide not to sell it. I could then use this as extra collateral if I wanted to take out a loan of my own.

    However, in 2008, Alice went away, leaving only Bob. Bob bids $6K for my loan asset. I still don’t want to sell it (especially at that price), but the law says I have to use his bid as the expected value. All of a sudden, my books show a $24K hole. (I’m in even bigger trouble if I got a loan based on your asset that I thought was worth $42K).

    None of this (directly) effects whether or not you’ll be paying me $100K in 10 years; that probability hasn’t changed. If my initial risk assumption was right, there’s still a 50/50 chance you’ll pay, and the real value of the loan is still $30K. But I have to treat it as if it’s worth $6K, simply because the only people wanting to buy it (Bob) thinks its worth that much.

    The proposed solution is to use something other than Bob’s bid to set the value of the asset; that’s where “what you think it’s worth” comes into play. The big problem with this is that we don’t have any measuring tool better than market prices to value risk. Risk assessment is so complex that usually we say “screw it” and let the wisdom-of-crowds do the work for us. Unfortunately, the crowds aren’t always wise / rational, and so mark-to-market might be hurting us now above and beyond the real problems in the economy.

    The other trouble with non-market-based approaches to value is that they’re easier to manipulate. If I think that the chance of default is really 50% but I say it’s 25%, I can artificially boost the value of my asset and use it as collateral. In this case, the person lending me money has made a riskier investment than he thought. Alternately, I could exaggerate the risk of default, claim a loss on the value of the asset, and use it to avoid some of my taxes. Mark-to-market is useful because, even though it was imperfect, it was at least transparent; you couldn’t get away with too much.

    An ideal solution would have both the transparency and objectivity of mark-to-market but not rely on the occasionally-irrational markets for its valuation. So far, I don’t know of any system that would provide this. However, necessity is the mother of invention; we might just see a better system emerge as a result of the crisis we’re in. We may even get stronger because of our illness.


  3. Perspective

    November 22, 2008 by Craig

    Summary

    Market graphs can tell very different stories depending on the particular timeframe.

    I’m a very visual person. Any time I need to analyze something, I make a picture, either physically or in my own head. I can’t do mental math without having a mental piece of paper with mental numbers written on it. A series of numbers is not very useful to me… but blot those numbers on graph and I can easily see the trends.

    Today I was listening to the Marketplace Podcast for my usual dose of business news. Of course, the talk was all about the recent financial mess. Since I was at my computer, I decided to check out the graphs for the S&P 500 (one of the best indicators for overall stock market performance in the U.S). I hadn’t kept up on them recently, so I thought it was a good time for some updated information.

    The numbers and graphs themselves didn’t really impress me; they mostly followed what I’d been listening to for the past few days/weeks/years. What prompted my blog post was how different the graphs looked depending on the timeframe.

    Follow along with me as I show you what I mean. A few notes first:

    • All charts are courtesy Yahoo Finance. Their old charts are still the best ones out there IMO. Since I couldn’t figure out a way to lock them to a specific date, I’ve copied these particular instances directly to my site (Yahoo, please don’t sue me).
    • For the latest charts, go to their S&P 500 page. There’s lots of graphing options there for your pleasure.
    • You can click each graph for the full-sized version.
    • All of these charts are on logarithmic y-axes. That means that they emphasize relative (percentage) gains, not absolute gains. This is important when understanding trends, especially over longer periods of time. Any amount of absolute change will mean different things depending on whether it’s applied to a large or small value.
    • I’ve also added some example analysis of what each picture could represent, absent of outside context.

    Past 1 Day

    First of all, here’s the 1-day view (for Friday, November 21, 2008):

    S&P 500 1d 2008-11-22

    Based on this picture, you could say that the market had a great day, although it started out pretty mundane. But things are looking up.

    Past 5 Days

    Here’s the view of the past week.

    S&P 500 5d 2008-11-22

    This picture shows a down period. The last half of the week was definitely rocky, but there’s nothing earthshattering here. It looks like there’s a recovery started.

    Past 3 Months

    Moving right along, here’s the past quarter-year:

    S&P 500 3m 2008-11-22

    There’s a clear downward trend. It’s a fairly straight line. There’s a few significant dips, but they’re followed by recoveries that bring it back to the main trend line. This is troubling.

    Past Year


    S&P 500 1y 2008-11-22

    Wow, check out that big drop after a mild decline. Things must be going to hell.

    Past 5 Years


    S&P 500 5y 2008-11-22

    OMG, we’re in an nosedive! Something is seriously broken to take a drastic turn like that. EVERYBODY PANIC!

    Max

    This is the full history of the S&P 500 since its inception 50 years ago. Unfortunately Yahoo has no finer granularity between 5 years and max.

    S&P 500 max 2008-11-22

    The trend here is clear: the stock market has been climbing at a pretty steady rate since the formation of the index. I have some additional notes:

    • Regardless of the long-term trend, there’s lots of bumps along the way.
    • I eyeballed the slope of the line between the start of the graph and 1995, and then extended that line to the current day. My imaginary line happened to match the current value of the S&P 500. With this analysis, you could consider the current crash to be a big correction from the much-higher-than-average growth that we’ve had since 1995 (especially before 2000).
    • The biggest dip (2001-2003) is the one that follows the longest period of smoothness (1991-2000).
    • The downward periods tend to be shorter and steeper than the upward periods. Each bump leands towards the right.
    • The current downturn looks a lot like the triple-whammy we had in early part of the decade caused by the dotcom crash, 9/11, and the Enron/corporate accounting scandals.
    • There’s other downturns too. Check out 1973-1975; the drop there it has a similar profile and depth to the one we’re in now. Note the hard floor around year-end. The recovery is interesting too: there’s a clear trend up, but it takes the rest of the decade to best the previous high.
    • You may remember the huge crash of 1987 (I was 10 at the time; it was one of my first exposures to the financial world). Note the sharp spike; the steep slopes on both sides of the peak makes the event stand out like a thumbtack. Note that the market continued its climb afterward.

    I don’t want to make too much of these graphs or my analyses. I think these are more “interesting” than “predictive”. But I do think that it’s good to see the difference perspective makes.


  4. Eco-Gouging

    October 22, 2008 by Craig

    Recycling may or may not be bullshit, but the combination of new programs I’ll be signed up for in 2009 probably are.

    The City of Calgary will soon be charging $8 a month for curbside recycling. This is not an optional charge. The program gives you a second garbage can to throw certain trash into. The city will hire people to sort the trash and presumably reclaim it (although I haven’t seen the plan for this explained in any detail).

    Also in 2009, I’ll be paying a new fee for for plastic milk bottles. This is over and above the ones I pay for other plastic, glass, and metal containers; there’s several depending on the specific container.

    By themselves, neither of these programs are terribly bad. The combination leads to double taxation though. If I throw my containers into the recycling bin, I end up losing the “deposit” I paid at the store, and that charge becomes a direct expense. If I do my own recycling at the local recycling depot to get the deposit back (which, by the way, is not worth my time), then I’m not taking advantage of the curbside recycling that I’m paying for, which amounts to a net loss of value.

    I’m not against recycling in principle, but I am against any program that’s based on flawed reasoning or trendiness, and these may qualify. Is the goal really to help the environment? If so, is the benefit worth the environmental costs of maintaining a team of people and fleet of trucks (over and above the regular garbage infrastructure)? Has this cost/benefit analysis been done? Is it public? Why turn “deposits” into “fees” with the overlapping programs? Is the city recycling program keeping the money earned on the provincial deposit returns? If so, is this part of the plan to pay for the program, or was this fact simply swept under the rug? Is this all about feel-good environmentalism without any real benefit?

    I’ll welcome any answers that are backed by evidence.


  5. This Time It’s Different

    October 7, 2008 by Craig

    Summary

    The current market turmoil has lots of people believing the economic sky is falling. However, downturns have happened repeatedly in the past, and the markets have recovered.

    You’ve probably heard about the financial, stock, and housing market upheaval in the United States. You may also know that similar events are happening in Europe, and that Canada is having its own issues. You may have heard talk about “Depression” (hearkening back to the Great one). Some have been calling the economy “broken“, and that the U.S. is due for a protracted economic downturn. There’s lots of panic to go around. Even though there have been downturns and recoveries in the past, we hear “This Time It’s Different”: that the circumstances we’re in today are “unprecedented”, and that this uncertainty will lead to major strife.

    When considering this, it’s very important to understand that humans do a very poor job of estimating risk. When thinking subjectively, we overestimate the probabilities of some risks and underestimate others. The invention of for-profit mass media has probably made this behavior worse:

    1. News sources make their money by attracting viewers.
    2. Viewers are attracted to bad and/or impressive-sounding news.
    3. To maximize viewership, news sources tend to emphasize (and possibly exaggerate) the frequency and impact of the stories they report.
    4. People view this and gain beliefs that don’t reflect reality.

    With that in mind, I’d like to offer this presentation on how the current downturn measures up to previous ones. I think it’s very illustrative of what’s happening now and in the past. The premise is stated early on:

    I don’t want to dismiss the anxiety some investors may be feeling, but just looking at the numbers, there is nothing remarkable about the severity or duration of this particular bear market.

    The presenter (Weston Wellington) then follows with some statistics regarding the depth and duration of previous slowdowns and their corresponding recoveries. The remainder of the presentation is historical news articles and magazine covers that predicted doom yet turned out to be false.

    We don’t know with any certainty what the future will bring; anyone who claims otherwise is misleading you. It’s possible that we’re still at the leading edge of a major long-term economic valley. However, there’s little evidence to suggest that that’s the case, and quite a bit to indicate that we’ll be past it sooner rather than later. “Unprecedented” is a word used more often than it should be, and even then it does not mean “unsolvable.” It’s very important to separate the facts from the rhetoric, and then act on the former while ignoring the latter.


  6. Irrationality, Values, and Behavior

    September 11, 2008 by Craig

    Summary

    Challenging irrationality may require an irrational approach.

    Yesterday I read this excellent essay by Johnathan Haidt entitled What Makes People Vote Republican?. I also sent it to Marco, who wrote a blog post on it called Why the Democrats don’t get it …. I strongly recommend reading Haidt’s article, and Marco’s ongoing U.S. political commentary is good stuff too.

    In the comments for Marco’s post I wrote:

    One important thing to realize is that most people aren’t strictly rational much of the time; rather than change their beliefs they’ll instead rationalize them and reject any challenges to them. Thus, people frequently believe that the system they’re in is really in their best interests, even if it’s objectively not. This is how oppression of all magnitudes (from head scarves to police states) continues to exist; people accept and rationalize it to some degree and thus don’t work harder to throw off the shackles. Making a rational argument against this often won’t work — it’s not that people aren’t aware of the rational points, it’s that they ignore them.

    To which Marco responded:

    Thinking that “people” are irrational but “we” are not is where the elitist label comes from. Check the polls to see how well that’s doin’.

    I do believe there is right and wrong–and that some things are wrong–but I do not just assume I am “more rational” than those who disagree. I think that’s a dangerous preconception to have 🙂

    My choice of the word “irrational” has a lot to do with the book I’m currently reading: Predictably Irrational: The Hidden Forces That Shape Our Decisions. It’s a great introduction into the field of behavioural economics: the science of decision making and the consequences thereof. The book deals extensively with how people tend to make decisions based on less-significant factors instead of more-significant ones. The classic example is that of the cost of a painkiller drug and its relationship on effectiveness. When patients receive painkillers, the amount of pain reduction they experience is proportional to the the cost they believe the drug posesses. A higher-cost painkiller provides more relief than a lower-cost one, even if the actual drug involved is the same in both cases. These sorts of effects and beliefs are called “irrational” because they exist solely within the human mind, and are often emotionally-based.

    The point I was trying to make in my post was that irrationality will often trump rationality in the mind of a person. If that is the case, then attempting to change belief and behavior by making a strictly rational argument is doomed to fail. This is similar to what Haidt writes; he implores the U.S. Democrats to adjust their strategy (but not their principles) to trigger the value judgements of a wider range of voters (something that the U.S. Republicans have been more successful at over the past two decades). My belief is that any position must take into account (and probably leverage) the irrationality that exists within people in order to be successful. Where Haidt and I overlap is concerning held values that happen to be irrational. We both agree that these cannot be ignored — which how they are treated by significant portion of the Americal liberal population. Because this same population also tends to be more educated than the rest, they also receive the label “elitist”, which further alientates them and hurts their cause.

    As Marco correctly points out, there is plenty of risk surrounding the question of rationality. We all act irrationally at least some of the time, and we all (irrationally) misjudge how much our beliefs are rational. Any truly rational action will have to take this into account by imposing objective checks upon itself. Assuming that disagreement equals irrationality (as Marco puts it) is certainly counterproductive.


  7. Lies, Dammed Lies, and People

    August 20, 2008 by Craig

    Summary

    Facts don’t lie, but people will take facts and use them to serve their agendas. Relying on just the conclusions is dangerous; analyzing the facts and reasoning behind the conclusions will provide better results.

    During our recent blargument Marco wrote:

    Facts say what the speaker wants them to (like statistics).

    I responded:

    This is an abuse of the word “fact” (and “statistic”). I know that your idea of what’s “fact” and mine do not necessarily like up exactly, but there’s no sense in trying to make “fact” mean “objective” and instead make it “subjective”.

    We already have a word for that: “opinion”.

    I might like to *say* that my opinions are facts, but that doesn’t make it any more true than if I say my car is a Ferrari. It may or may not be, but it would be silly to take my word for it without some sort of evidence (a peek in my garage, my vehicle registration, or perhaps a look at my bank account).

    Persuasive arguments are not always false or misleading, but I am at a disadvantage if I take persuader’s word for it that his statements are true (ie: are facts). I need to take other information into account. Part of that may be experience (how accurate has he been in the past, is he drawing reasonable conclusions based on the evidence he’s presented), but outside evidence and/or well-reasoned counterarguments are even more reliable.

    (I’ve added the emphasis in my reposting here.)

    A week ago the U.S. Government Accountability Office published a study about corporations (both US-based and foreign-controlled) and the taxes they pay. It was factual, apparently objective, and probably accurate (I don’t know how well the GAO does their job, but for the purposes of this argument I’ll assume it’s correct). It specifically did not draw any conclusions from the facts that it presented.

    The news media took the report and wrote hundreds of stories on it. Many (most?) of them had the theme “Corporations use tax loopholes to pay less than their ‘fair share'”., lead by the Associated Press who claimed that two-thirds paid no federal income taxes between 1998 and 2005. Even my favorite business news source, APM Marketplace, did a bit about big evil pampered corporations, leading off the story by saying that if real people were dodging their taxes on this scale, there would be public outrage.

    The very first thing I thought of when I read the first of these GAO news stories was “were the corporations that aren’t paying taxes also not earning income?

    In the U.S. (and in Canada, and probably most other developed nations), corporations pay “income” taxes on their profits, not their sales. This makes sense to most people when you explain it to them. “Sales” refers to the amount of money a business takes in. Subtract “costs” (what they pay out) from that, and the leftovers are what they keep: “profit”. Taxing based on sales (which would ignore costs and profitability) isn’t very effective, because it would hurt a an already struggling company with high sales and low or negative profitability (think GM) yet give a company with small sales and great profitability. There are such things as taxes on certain assets (which would effect business which own those assets, which may tend to be larger), but that’s not what the study was about.

    Most people think of corporations as big entities with thousands of employees, woldwide reach, and millions (or billions) in sales — and thus want them to pay millions of dollars in taxes. The truth is that most corporations are small and local; many have only one employee. Many are short-lived too (many don’t survive beyond five years, although the actual numbers vary depending on the study). A lot of them don’t have profits in every year. The laws allow a business who has a loss in one year to apply it against their profits in another year for the purposes of taxes (allowing that business to “catch up” from a business slowdown). Some (similar to my own business, although I’m not incorporated) pay out all of their post-expense sales money to their employee(s) (who then pay personal income taxes on it), and thus show no profit and pay no corporate tax.

    As it turns out, what I wrote above is probably a better explanation for the results than “corporate tax-dodging loopholes”. The GAO report itself wrote, in the very first paragraph of the summary:

    Most large [foreign-controlled] and [US controlled corporations] that reported no tax liability in 2005 also reported that they had no current-year income. A smaller proportion of these corporations had losses from prior years and tax credits that eliminated any tax liability.

    However, that’s not the story you got from most of the news articles.

    A few sources did try to offer counterarguments to the popular story. Fark summed it up nicely:

    Do corporations really pay no taxes? Or is it just a bunch of overhyped media BS on a slow news day? The real numbers indicate the latter

    This is yet another example of why counterarguments are necessary in most (if not all) discussions. Facts don’t speak for themselves (in fact, they don’t speak at all; they don’t have mouths), but everyone with an opinion or an agenda will be quick to offer theirs as the “correct interpretation” of the facts.

    It’s too much to ask for an unbiased interpretation of the facts from any one source (as evidenced by the countless examples of biased interpretations) so your best bet is to get multiple interpretations, analyze the reasoning behind their conclusions, and determine the best conclusion based on the strength of the arguments.

    Note that this doesn’t necessarily mean picking the best argument out of the group of all arguments. Each argument should have some aspect of the truth in it (if it’s completely faulty then you can discard it). Conclusions will usually only be true if their assumptions are correct, and often decision making comes down to picking from the most probable (but not necessarily correct) assumptions. If it comes down to a choice between one good argument with bad assumptions and one bad argument with good assumptions, you might get the best results by combining the two.


  8. Can Money Buy Happiness?

    April 26, 2008 by Craig

    We in North America love to say that money can’t buy happiness. Justin Wolfers has writen a six-part blog post describing how that is not necessarily true — in fact, money and happiness are in fact strongly correlated.

    The facts about income and happiness turn out to be much simpler than first realized:

    1. Rich people are happier than poor people.
    2. Richer countries are happier than poorer countries.
    3. As countries get richer, they tend to get happier.

    Moreover, each of these facts seems to suggest a roughly similar relationship between income and happiness.

    There’s a lot of great facts, data, and analysis in his series — far to much to explain here. Instead, I’ll simply link to the articles and recommend that you read them if you’re interested. They’re quite an easy read and have some great graphs.

    1. Reassessing the Easterlin Paradox
    2. Are Rich Countries Happier than Poor Countries?
    3. Historical Evidence
    4. Are Rich People Happier than Poor People?
    5. Will Raising the Incomes of All Raise the Happiness of All?
    6. Delving Into Subjective Well-Being

    Also, here’s the original research paper. (Note: PDF)

    I would like to post two significant quotes though. Firstly:

    When we plot average happiness versus income for clusters of people in a given country at a given time, we see that rich people are in fact much happier than poor people.

    It’s actually an astonishingly large difference. There’s no one single change you can imagine that would make your life improve on the happiness scale as much as to move from the bottom 5 percent on the income scale to the top 5 percent.

    Also:

    There’s another striking finding in this graph: the relationship between happiness and log income appears nearly linear.

    Thus, a 10 percent rise in income in the United States appears to increase happiness by about as much as a 10 perecent rise in income in Burundi.

    Even so, it is worth noting that a 10 percent rise in income in Burundi requires one-sixtieth as much income as a 10 percent rise in income in the U.S. Thus, even if the slope is three times as steep for rich countries as poor countries (as we estimate), this still means than an extra $100 has about a twenty-times-greater effect on happiness in Burundi than it would in the United States.

    I think that this last one plays a significant role when discussing fighting terrorism (and foreign policy in general). If terrorism does have its roots in unhappiness (which is not proven but quite likely true) then the most effective means of combating it may be to take the money spent on rich-nation soldiers and arms producers and sink it directly into improving the lives of poor-nation civilians. That may have a better bang-for-your-buck ratio than trying to attack terrorists directly.

    Lastly: these data show correlations, and correlations are not causations. It is not possible (yet) to say that money does cause happiness. It may very well be the opposite effect: happiness causes productivity and thus higher GDP. However, there is some evidence that it really is the former situation (see the articles for full details), and I think that we’ll see a stronger causal link in the future as more research is done.


  9. Nonprofessional Investors

    April 19, 2008 by Craig

    There’s a fair amount of evidence and for the Efficient Market Hypothesis, which states that it’s impossible to achieve better-than-market returns (when adjusted for risk) on a regular, repeatable basis.

    However, if there’s one person who can disprove the EMH, Warren Buffett is that person. Not only has he very consistently done better than the market for decades. Not only does his existence create some evidence against the EMH, but he can cite other real-world examples too:

    We bid on this particular issue – this happens to be Citizens Insurance, which is a creature of the state of Florida. It was set up to take care of hurricane insurance, and it’s backed by premium taxes, and if they have a big hurricane and the fund becomes inadequate, they raise the premium taxes. There’s nothing wrong with the credit. So we bid on three different Citizens securities that day. We got one bid at an 11.33% interest rate. One that we didn’t buy went for 9.87%, and one went for 6.0%. It’s the same bond, the same time, the same dealer. And a big issue. This is not some little anomaly, as they like to say in academic circles every time they find something that disagrees with their theory.

    Buffet has also said:

    Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day.

    Unfortunately, frequently efficient is enough to force most of us to give up on dreams of making it big in the stock market. It’s been shown time and time again that most investors cannot beat the market (after adjusting for risk) on a regular basis. (Keep in mind that this includes most active mutual fund managers too).

    Buffett knows this, and gives some advice for us unwashed masses:

    Well, if they’re not going to be an active investor – and very few should try to do that – then they should just stay with index funds. Any low-cost index fund. And they should buy it over time. They’re not going to be able to pick the right price and the right time. What they want to do is avoid the wrong price and wrong stock. You just make sure you own a piece of American business, and you don’t buy all at one time.

    He also said:

    …for most people, the bulk of their income is going to come from earning power in their chosen profession. Therefore, from the standpoint of building wealth, free time is better spent sharpening one’s professional skills rather than studying investing.

    Personally, I’ve seen a lot of people at a lot of different jobs spend their time chit-chatting about stocks and investing rather than working or finding ways to enhance the business they’re already in. And consider this: how many people do you know that have made the bulk of their fortunes investing their own money in companies that they didn’t also have a hand in managing? Keep in mind that most professional financial investors make their money from commissions, not investments, and most capitalists, entrepreneurs, and executives make their money from growing their own companies. There’s only a handful of Buffetts that make it big in stocks.

    (Inspired by this Lifehacker post.)


  10. Learning a New Tool

    December 18, 2007 by Craig

    My old college buddy asks:

    When you are trying out a new development tool, what do you look for to help you learn how to effectively use the tool? Is it help files, tutorials, white papers, samples, case studies, etc? Or do you learn best by participating in classes or through mentoring? Perhaps you only try to learn tools that are easily assimilated, and if so, what makes one tool easier to learn than another?

    There’s a saying in the field of User Interface Design (computer and otherwise) that goes “there should only ever be one button: one that does exactly what the user wants.” Of course, this is hyperbole, but it does illustrate the theme of UI design: make the tool as easy to use / simple / natural as possible. A more usable product is the one that the user needs the least amount of thought to use and the least amount of initial training.

    Accomplishing this is incredibly difficult, which is part of the reason why most user interfaces are absolutely horrible (the other is that most engineers don’t study usability, especially usability for mass audiences). Fortunately, this is getting better: Apple has made UI a sellable feature, and User Interface Design is now a bona fide field of research that gets attention from the builders (if you’re interested, you can start with Neilsen, Norman, and Tog, the current gurus of usability.

    Now, to answer Graham’s question:

    what do you look for to help you learn how to effectively use the tool?

    Here’s my order of preference:

    1. The tool should follow some natural metaphor, if possible. Ideally, the tool should behave as if it is an extension of my body / mind. This way, there’s no learning curve; you already know how to use it. Unfortunately natural metaphors are hard to come by in the decidedly un-natural world of technology, so most of the time this isn’t available. Still, I think it should be said.
    2. If tool can’t follow a natural metaphor, then it should follow a familiar one. That is, it should try to duplicate one that already exists. This way there’s zero learning curve for users who already know the preexisting metaphor. There’s two big catches to this approach though:
      1. The old metaphor may not be terribly good to start with. Garbage in usually means garbage out.
      2. The old metaphor may not translate well to the new medium. QuickTime 4.0 is the poster child for this problem.
    3. If the tool can’t be familiar then it should be self-describing. The means of accessing the features should be apparent (in fact, blatant). Available features should be displayed (rather than hidden) at the ready. This makes the learning time efficient: you are able to learn while you actually use the tool. A good illustration of this principle is the use of text rather than graphical icons to represent features: text describes the feature far more explicitly and accurately than a (tiny) picture.
    4. If the tool can’t be (effectively) self-describing, then it should have description waiting in the wings for the initial learning period. Think of a tutorial, but one that teaches as the user uses the tool. Some modern games are great examples: every time that you encounter a new tool, feature, or technique they give you a brief explanation of how to use it, followed by some time to put it into practice. Play Half-Life or Portal with the commentary on to see the thought process behind this technique.
    5. If you can’t do an effective tutorial mode, the next best thing is to have built-in (local) context-sensitive help ready at the touch of a button. There are three important factors to application help: relevance, speed, and connection to other topics (ie: lots of hyperlinks). This will help a user get out of a jam, but it may not do much to get them started in the first place.
    6. If local help isn’t available, putting your help on the Internet (say, in the form of a FAQ) is almost as good as local help, although it’s not available if you’re disconnected (ie: on a plane). Internet help also lets you enhance help post-launch and get feedback/usage stats. If you get a good community behind the tool, they can potentially help with the help (with wikis & blog posts).
    7. Examples can be useful; lots of people learn better from example than they do from a spec. The major problem with examples though is that they are necessarily of narrow focused and contrived. They may not be answering the questions that are being asked, and they certainly won’t be able to answer every question.
    8. White papers and other wordy documentation are not nearly as useful as other forms of instruction; it’s harder to find the solution to a particular problem when it’s floating in a sea of flat text. Always remember that, as a rule, people don’t read.
    9. Screencasts are appropriate for dynamic situations, where capturing the actual motion is important. Otherwise, video just becomes a very hard-to-use interface to the information being communicated; think of a book where the pages are turned at a fixed rate. Static text and pictures are better for most applications.

    I’ll leave mentoring off my list entirely. I’ve never been a fan of (nor had much experience with) mentoring, because:

    • I’ve always had a do-it-myself (and discover-it-myself) attitude.
    • I’m often learning at the (b)leading edge of things; mentors with prior experience aren’t always easy to find.
    • Likewise, people with more experience are often too busy to spend a lot of time mentoring. They’re adding more value by operating, especially if I’m able to learn effectively without their help (which, in turn, makes me more valuable too).
    • I’m more anti-social than most. For work purposes at least, personal interaction is a means to an end, not an end in itself.

    These don’t apply to many (most?) other people though, so they’re not a criticism of mentoring itself. Many people appreciate mentoring and find it valuable.

    Lastly:

    Perhaps you only try to learn tools that are easily assimilated

    I certainly prefer easily-assimilated tools. A small learning curve makes the tool more efficient, which is half of the value equation. The other half is effectiveness, and that’s where poor tools can find their niche. If there’s no other tool that can do the work of one with a crappy interface / steep learning curve, then there’s not much choice in the matter; I’ll have to bite the bullet and learn / use it. But I’ll always be looking for a way out.