Archive for October 2017

Confirmation Bias and the Morningstar Story in the WSJ

Like many folks, including Mark Perry, I would tend to agree with the following statements

  • Past performance is not a very good indicator of likely future performance
  • One should generally eschew managed funds in favor of low-cost index funds

However, I think a lot of folks who believe these same things are applying confirmation bias when looking at the data in a recent WSJ story on Morningstar.  Morningstar analyzes mutual funds and rates them based on their past 1/3/5/10-years performance in relation to other funds of the same type.  Funds in the upper quintile of past performance get 5 stars, the next quintile gets 4 stars, etc.

Morningstar is sort of coy about whether the ratings are supposed to have predictive value.  They will say that of course they only measure past performance, but there would be no way to sell these ratings to folks for millions of dollars (as they do) without there being some implication the ratings were at least partially indicative of future performance.

So the WSJ did something interesting -- they went back 10 years and took all the 5 star funds and looked at how they have done since (as measured by Morningstar itself with its star ratings).  So how many 5-star funds ten years ago actually had 5-star performance over the subsequent years, and so on.  And it turns out that a lot of the 5-star funds have not performed very well.  This is a good reminder to us all.

BUT.  Look at their own data:

Yes, the 5-star funds from 10 years ago only average 3 today.   Everything regresses towards the mean, as we random walk folks might expect.

But the 5-star funds did better than the 4, which did better than the 3, which did better than the 2, which did better than the 1.  This actually understates the difference, because many of the lowest performing funds in the lower star categories closed in this 10 year period, so are not in the final metrics, which likely raises the scores of some of the lower buckets because they dropped out (59% of the 1-star funds closed or merged in this period while only 22% of the 5-star funds did so).

This is actually -- to someone who doesn't really buy into the whole stock-picking thing -- a pretty impressive achievement.  I challenge you to take stocks or bonds or mutual funds of roughly the same type and divide them into 5 buckets, rank the buckets by expected performance, and actually have this ranking hold for 10 years.

Terrible Symbolism

I know that many of my readers have more skepticism than I about open immigration.  We will leave that for another day.  But I am not sure how any American who prides themselves on American exceptionalism and our leading role in the world promoting freedom wouldn't cringe at seeing these pictures.  What a terrible image they will make running for thousands of unbroken miles.

I am not sure why we are going through all this engineering effort when we could just be borrowing from the experts:

Postscript:  Congrats to our local entrants from the Phoenix area firm that submitted by far t

he ugliest design.

Update:  Just to confirm, based on the comments:  Yes, I do not see an ethical difference between stopping people from coming in and stopping them from going out.    Others of you do see a difference, and we will have to disagree.  I don't think the Berlin Wall would have shifted from evil to OK had it been built by the West Germans instead to keep communists bottled up on their side.  I know folks love to use the home analogy, that it is OK to fence folks out of your home but a federal crime to fence them in.  But I have always thought equating a whole country to private property is a bad analogy.  Basically, such an assumption rests on socialist community property ownership assumptions.   A Mexican man wants to drive a car he owns, using gas he buys along the highway, along a road paid for with the gas taxes he just paid, to take a job at my company I freely offer him and rent an apartment I freely lease to him.  Voting, government benefits, holding office -- we don't necessarily have an obligation to offer any of those things, at least initially.  But I don't think it is ethical to erect this wall in his path to exercising free exchange.

Keynesian Economic Stimulation, White Collar Edition

Irony of Phone Design

My last phone was a Droid Turbo (or some variant of that).  It was a tank (and btw the battery was so large it would last a week).  It was also butt-ugly, but you could drop that thing from an airplane and it would probably keep working.  I never bothered with a case.

My new phone is a Galaxy S8.  It is probably, looks-wise, the acme of phone design right now and the polar opposite in attractiveness from the Droid Turbo.  But it is literally almost all glass.  The front is glass.  The back is glass.  The sides, dues to the curved bezel, are mostly glass.  If you drop this thing you are going to hit -- wait for it -- glass.  I was changing cases on it and dropped it from a height of no more than three feet and both the front and back glass shattered.  So you MUST put this expensive phone in a relatively bulky case.  You can have a slim case that may or may not protect the screen and sort of retains some of the feel of the curved bezel or a bulky case that probably will protect the phone but makes the entire phone design moot.

My point is that companies seem to be designing phones for how good they look and feel in the Verizon store**, rather than how they will actually look bundled up in a large case in real life.  Once you provide reasonable life-protection for the S8, all its expensive design features are covered up.

One thing I have learned during this experience is that the vast majority of the millennials who rate cell phones on review sites like Engadget are wildly over-influenced by aesthetics.  For example they all seem to downgrade phones that have larger bezels and metal rather than glass packaging, irregardless of reliability. I am still looking for a site that publishes a good list of drop test results and ratings.  I don't think I will buy another phone without seeing these results (I was considering a pixel 2 until I saw is horrible drop results).  I would also like to see someone who grades phone aesthetics in the sort of cases we are all going to put on them.  Honestly if I had time I would probably start my own review site focused on real-world use, emphasizing characteristics like reliability, repair costs, drop test results, and battery life.


** For a long, long, long time, TV manufacturers ruined TV pictures so they would look better in a store.  Every TV you could buy, at least in the pre-LCD era, had super-high color temperatures shifted way up into the blues.  The colors looked like crap in a dark room watching a movie, but the picture appeared brighter in the TV showroom.  Back in the day, one of the first things one would do with a good TV if one was a movie snob was to get the TV color calibrated or look for a TV that had a color temperature setting.

Oppressors, Oppressed, Privilege, and Free Speech

A few days ago I wrote:

Speech codes are written by and for the privileged.  They are written by the oppressor to shut up the oppressed.  George Wallace did not need the First Amendment, black kids trying to go to the University of Alabama needed it.  So the progressive opposition to free speech (e.g BLM shouting down the ACLU over free speech) is either 1) completely misguided, as the oppressed need these protections the most or 2) an acknowledgement that progressives and their allies are now the privileged, that they are the ones in power, and that they wish to use speech codes as they have always been used, to shut up those not in power.  In our broader society the situation is probably #1 but on university campuses we may have evolved to situation #2.

Example of #1 (via Overlawyered)

A woman has been questioned by police and could face a hate crime prosecution after she waved a banner at Belfast’s Pride parade reading “Fuck the DUP”.

In a case that could have consequences for free speech and the right to offend across the UK, the Police Service of Northern Ireland (PSNI) says it will pass a file to the region’s public prosecution service (PPS) after Ellie Evans, 24, held up the placard at the August parade to protest against the party’s policies on gay marriage.

The investigation was prompted by a complaint from DUP politician Jim Wells, who told the Guardian that the slogan constituted “incitement to hatred and potential public disorder”.

Example of #2

A few months later, I received a letter from two Reed students of colour that was being distributed among alumni like a piece of samizdat. The students didn’t reveal their names for fear of being ostracised, but they described a campus that had been overtaken by militants who routinely shamed as racists anyone who didn’t agree with them. One of those singled out had been a freshman named Hunter Dillman who had been branded a racist after asking the organiser of a Latina student group an innocent question. He was ultimately hounded off campus.

The students said the Facebook shaming became even more virulent as the year went on. When another white student apologised to Amanda for being unable to attend a particular protest because he was behind on his schoolwork, Amanda accused him of being the kind of white guy who would ‘laugh at a lynching’. The students felt Amanda’s charge was so outrageous that they decided to take a big step: they would all ‘like’ the student’s apology on Facebook, even though they might be called racists as well. ‘As students of colour we felt that we had to do it’, one of them later told me. ‘It would have been 100 times worse if somebody white liked it.’


Most Depressing Thing I Read Today

On the Dell web site, at the head of a no-export agreement I had to sign:

The U.S. government views exporting as a privilege, not a right.

Of course, my home state of Arizona considers every commercial transaction to be a privilege, not a right.

Microsoft is Not My Friend Today

I am working with Dell to create a starting computer image for laptops I buy from them that will have all our computers set up the way we want them to be right out of the factory.  This will save an hour or so of work for me on each computer.

This works really well EXCEPT for Microsoft's heavy-handed intervention.   As part of the setup process before I create the default image, I switch the windows default browser to Chrome and the default app for opening pdf files to Adobe Reader.  No matter what we do, when the new computer boots up with this image, windows switches the default browser and PDF app to Microsoft Edge (apparently via 'sysprep".)  I might be able to live with this for the browser, but Edge is defective in opening PDF files, specifically it does not allow pdf's with form fields to be saved in a way that retains the form entry.  My users will never be able to figure out how to reset this themselves so now I have to figure out how to write batch files so I can override the Microsoft override after it runs.  Less intrusive but still irritating is the fact that Microsoft also adds back all their sales spam I deleted, including their "get office" and "try skype" apps.

As an aside, it is really sort of funny nowadays to put Chrome or Firefox on a new Microsoft computer.   If you try to make these other browsers the default, you get this message that says something like "wouldn't you like to try Edge, it is way better than our old browser that we tried for years and years to make you use and then abandoned."  I am paraphrasing of course, but that is the gist.

UNC Avoids Athletic Sanctions By Arguing their African-American Studies Dept. Had Staggeringly Low Academic Standards

Well, it appears the common Conservative critique that many university race and gender programs have really low standards has a new supporter:  The University of North Carolina.  UNC successfully argued that it was not giving its athletes special treatment in the African-American studies department -- they had low standards for all students in that department.

A years-long probe into widespread academic fraud in North Carolina’s athletic program, including its storied basketball powerhouse, reached an unexpected end on Friday when the NCAA announced it would not issue major sanctions against the school.

The prolonged investigation focused on a major at the university, African and Afro-American Studies, where about 1,500 athletes over 18 years took advantage to make good grades with little to no work involved. The university’s defense did not focus on the legitimacy of the courses—the NCAA said “generally, the facts of this case are not in dispute.”

UNC instead argued that any problem was university wide, not limited to the athletic department, because the courses were available to all students. On Friday, the NCAA accepted the university’s explanation. .

“A Division I Committee on Infractions hearing panel could not conclude that the University of North Carolina violated NCAA academic rules when it made available deficient Department of African and Afro-American Studies ‘paper courses’ to the general student body, including student-athletes,” the NCAA said Friday.

Greg Sankey, the head of the Southeastern Conference who was the chief hearing officer on the panel, said athletes “likely benefited from the so-called ‘paper courses’” but that “the information available in the record did not establish that the courses were solely created, offered and maintained as an orchestrated effort to benefit student-athletes.”

Just so we are clear exactly what we are talking about, UNC freely admits, in fact desperately argues, that it was offering courses like this:

UNC’s surprising defense focused on its own systemic shortcomings. It said that the problems were so fundamental at the school, it wasn’t actually an NCAA issue, and therefore wasn’t for the NCAA to govern. One estimate said athletes made up about half of the roughly 3,100 students who participated in the classes.

These classes were generally portrayed and shown to be fake for the most part. The NCAA, in its decision, said the classes did not require attendance. The students rarely, “if at all” interacted with a faculty member. The classes typically required one paper where the person who graded it admitted she did not read them in the entirety. These classes, the NCAA said, had “liberal grading.”

For reference, the entire UNC system (not just this location) consumes about 12.5% of the entire North Carolina state budget.

Update:  I was thinking over the weekend about whether this really horrible level of education for the money could be considered racist, since a substantially disproportionate number of the students in this department are black.  If one argues that the value of college is in the education itself, then it is preposterously racist, particularly since it hurts minorities at other colleges by reinforcing the general stereotype of low academic standards in race studies programs.  If one argues that the value of college is only in the degree itself - the piece of paper - I suppose one could consider this affirmative action.

The Progressive Argument for Free Speech

A reader sent me a link to this critique, sort of, of free speech in the Daily Princetonian.  I say "sort of" because I thought the thinking and logic of the article was pretty muddled, so much so that I am not even totally sure what point they are trying to make, exactly, though it clearly is meant as a critique of Conservatives defending free speech.   Frankly I was pretty depressed that a Princeton philosophy major couldn't write in such a way as to make even their thesis clear.

Anyway, the comments are closed and I still feel enough of a connection to Princeton that I wanted to at least try to engage the students, so I wrote this back:

I didn't find your Daily Princetonian article of 9/25 particularly compelling, in part because you don't engage with defining an alternate regime if you toss out free speech.  "we don't need to hear any more form group x or y" is a fine policy for setting up your personal Twitter block list, but how does it work in a democracy?  Everyone assumes when they advocate for such controls that they and their fellow believers will be the ones controlling, but do you really believe that?  After the last election?  What if a President Lindsey Graham (god forbid) were to take your rules advocating for getting rid of hate speech and define hate speech as advocating for abortion rights?  The ACLU didn't famously defend the speech rights of the American Nazi party because it liked Nazis -- it defended them because they were justifiably afraid that the precedent of speech limitation might someday be used to restrict speech far more dear to them.

This is why I think Progressives are making a huge mistake in opposing free speech, on their own terms.

Speech codes are written by and for the privileged.  They are written by the oppressor to shut up the oppressed.  George Wallace did not need the First Amendment, black kids trying to go to the University of Alabama needed it.  So the progressive opposition to free speech (e.g BLM shouting down the ACLU over free speech) is either 1) completely misguided, as the oppressed need these protections the most or 2) an acknowledgement that progresives and their allies are now the privileged, that they are the ones in power, and that they wish to use speech codes as they have always been used, to shut up those not in power.  In our broader society the situation is probably #1 but on university campuses we may have evolved to situation #2.

The folks who wrote the first amendment were thinking about this dynamic.  Had they instead decided to write a speech code, it likely would not have been good.  It might well have banned the criticism of slavery, for example, if Jefferson and his Virginians had anything to say about it.  But they didn't create a speech code, thank god.  In fact, I am trying to think of any time in history I would have been comfortable with the ruling elite locking down the then-current norms of their society into a speech code, and I can't think of one.  What gives you confidence, vs. the evidence of all history, that you can do so today with good results?

Yet Again, Forgetting the Mix

I like reading Zero Hedge, though their laudable cynicism about government and financial markets sometimes edges into conspiracy theory.

Anyway, I wanted to highlight something in a post there today about BLS data.  Various writers at the site have claimed for years that government economic data is being manipulated.  I am not sure I buy it -- I distrust government a lot but am not sure their employees could sustain such a fraud over months and years.  And besides, once you manipulate data one time to juice some metric, you have to keep doing it or the metric just reverses the next month.   Corporations that play special quarter-end inventory games to increase reported sales learn this very quickly.  Where there are apparent errors, I am much more willing to assume incompetence than conspiracy.

The example this week is from the BLS payrolls data, and I will quote from the article and show their chart:

Another way of showing the July to August data:

  • Goods-Producing Weekly Earnings declined -0.8% from $1,118.68 to $1,109.92
  • Private Service-Providing Weekly Earnings declined -0.1% from $868.80 to $868.18
  • And yet, Total Private Hourly Earnings rose 0.2% from $907.82 to %909.19

What the above shows is, in a word, impossible: one can not have the two subcomponents of a sum-total decline, while the total increases. The math does not work.

Certainly this is an interesting catch and if I were producing the data I would take these observations as a reason to check my work.  But the author is wrong to say that this is "impossible".  The reason is that these are not, as he says, two sub-components of a sum. They are two sub-components of a weighted average.  Total private average weekly earnings is going to be the goods producing weekly average times number of goods producing hours plus service producing weekly average times the number of service producing hours all over the total combined hours.

From this I hope you can see that even if the both sub averages go down, the total average can go up if the weights change.  Specifically, the total average can still go up if there is a mix shift from service providing to goods producing hours, since the average weekly wages of the latter are much higher than the former.  I will confess it would have to be a pretty big jump in mix.  The percent goods producing hours would have to rise from 15.6% to almost 17%, which strikes me as a very large jump for one month.  So I am not claiming this is what happened, but people miss the mix changes all the time.  I had to explain it constantly back in my corporate days.   Another example here.

Evolution of Black Lives Matter

1.  BLM highlights a real problem and creates a pretty decent plan for addressing that problem


2.  BLM totally abandons their reasonable plan and concentrates on acting as a virtue signalling vehicle


3.  BLM completely loses their minds by antagonizing a natural ally and opposing important minority rights protections

A few days ago I said I did not understand this anti-free-speech position well enough to pass an ideological Touring test.  Several commenters took a pretty good shot at making the argument for it from the perspective of the oppressor-oppressed political axis.  Let me, though, explain why I think the BLM argument does not work on their own terms.

The key thing to understand is this:  Speech codes are written by and for the privileged.  They are written by the oppressor to shut up the oppressed.  George Wallace did not need the First Amendment, black kids trying to go to the University of Alabama needed it.  So the BLM opposition to free speech is either 1) completely misguided, as the oppressed need these protections the most or 2) an acknowledgement that they and their allies are now the privileged, they are the ones in power, and they wish to use speech codes as they have always been used, to shut up those not in power.  In broader society the situation is probably #1 but on University campuses we may have evolved to situation #2.

Craigslist Has Become A Total Sewer of Scammers

I know the title of this post will come as a surprise to virtually no one.  I gave up on Craigslist years ago.  However, I had no idea how bad it has become.  My contractor had some left over materials.  My wife and I said to just drop it off at Habitat for Humanity but the contractor said they thought I could sell some of it for real money.  So the contractor listed it on Craigslist.  I so far have gotten 8 responses, and all 8 have turned out to be scams.  They are all variations of this theme:

i really appreciate your quick response to my text. I will be buying
the item from you, kindly withdraw the advert from C.LIST and
considered it sold. My husband will be overnight the payment asap but
he will be payingwith a certified check from his Bank and it will
deliver to you via United Parcel Service (UPS), so I'll need you to
provide me with the following information to facilitate the mailing of
the check... And am offering additional $50 with the original price to
have this asap. Name to be on the payment......Address to mail the check to.....
Cell phone # to contact you ......Final Asking price....

I will make arrangements for the pick up as soon as you have your
check clear, due to my work frame and my Kids, I will not be able to
come with the cash and pick it up myself , so my husband will mail the
check and have someone pick up the item after the check clear.,
Reference to your CL post am completely satisfied with it and the
payment will be deliver within 24hours.

Any reply will yield bot or script responses that make little sense.  For example I said:

Ok, I now believe this to be fake as I have gotten the same response word for word with the 50 dollars offer from multiple people.  This sale is cancelled.

The response was:

Thanks , I got the Details and the payment will be sent out tomorrow
and as soon as it sent out i will get back to you, Please keep the
other buyer off and the payment will get to you asap and the item will
be pick up after you have the payment

Apparently bots and Asian click factories send a trolling response to every sale on Craigslist nowadays.   I left a telephone number only in the ad (a burner cell phone thank goodness) and in turn I got urges to immediately email them back.  And then this script with small variations 8 times, but always with the certified check thing, the offer of $50, and an urge to take down the ad immediately.  Apparently the check is fake but you learn this only after you have shipped the goods.  Sites like this urge face to face meetings in cash, but I have little desire to meet Craigslist readers face to face, which is confirmed by the advice in this article to "meet the buyer in a police station" lol.  Might as well post the advice never to use craigslist.

If it has not already been written, this is the epitaph in my mind for Craigslist.  Possible moral of this story:  You can't build a trust-based system just by trusting people.  The lesson from places like Amazon and ebay are "trust but verify".

Update:  From commenters, part of our mistake seems to be to have let a third party put up the add because then we lose out on some of the internal Craigslist communication avenues that provide some protection.  A number feel like Craigslist is still a useful place to transact.  I will add that in addition to 8 cashiers check scammers I also got one paypal scammer later in the evening making contact.  Zero legitimate contacts to date.