Saturday, April 16, 2016

Defensive Indifference

I listened to the end of the Yankee's game this afternoon.  The Yankees were trailing the Seattle Mariners 3-2 with two outs in the bottom of the ninth but they had runners on first and third.  At this point the runner on first stole second.  However the Yankee's announcer, John Stirling, started claiming it wasn't a steal because of defensive indifference (since apparently the Mariners had not defended against the steal).  However a play should only be ruled defensive indifference  if  the run doesn't matter.  Here the potential winning run was moving into scoring position so defensive indifference does not apply.  And indeed when I checked later the play was properly scored a steal.  I knew the rule because Bill James in one of his books had discussed a similar play that had been scored incorrectly.  Stirling has been announcing Yankee's games since 1989, you would think he would know the rules by now.  Btw the next batter grounded out so the Yankees lost and the steal didn't make a difference.

Computer Go

Last month the computer Go program AlphaGo beat a top human player, Lee Sedol, 4-1 in a 5 game match. Long ago I studied Go some but never played enough to become very good. However I know the basics and was able to follow the match with some interest (despite the live games being at an inconvenient time). Go is a harder game for computers to play than chess and 20 years ago when IBM's computer chess program, Deep Blue, was playing Garry Kasparov, computer Go programs were pretty bad. So there has been a lot of progress. I see three big contributors to this milestone. First a new algorithm, Monte Carlo tree search (MCTS), developed about 10 years ago, proved to work very well for Go. Second there has been continuous progress in machine learning, in particular deep learning for artificial neural networks. Third computer technology continues to advance rapidly. Modern graphics processing units (GPUs) provide incredible computational power for suitable problems and this has contributed to recent advances in deep learning.

If you are interested in playing an online computer Go program check out the Cosumi site. It provides a variety of skill levels and board sizes (standard Go is played on a 19x19 grid but smaller sizes make for a faster game and are easier for computers to handle). I have played some 9x9 games against it. I find it an entertaining opponent. At level 5 (the highest level provided) it still moves quickly but can beat me most of the time despite the occasional weird blunder.  I recommend the 2-click setting to avoid frustrating unintended moves.  Unfortunately the FAQ is in Japanese so I don't know anything about the underlying program. Apparently it has been around for a while but I didn't discover it until the match got me interested in Go again.

Sunday, March 27, 2016

Portfolio Review 2015

My brokerage account again underperformed in 2015. The S&P 500 (as represented by the ETF VOO) was up slightly, 1.31% (capital return of -.78% plus dividends of 2.08%) but my account was off slightly, -1.77% (capital return of -4.35% plus dividends of 2.58%). Since almost half of my account is in VOO my other picks lagged by even more. I only had one stock up double digits (AET +22.84%) but eight down double digits (IBM -11.11%, CM -11.73%, XOM -12.57%, ESV -17.96%, VDE -23.17%, BNS -25.38%, COP -28.13% and BBL -38.13%). During the year I bought VPU, ALL, NSC and CM and I sold ESV dropping my cash position from 6.59% to 4.54%.

Wednesday, January 13, 2016

Powerball

The billion dollar Powerball jackpot lured me into buying a lotto ticket for the first time in my life. This proved pretty easy. There is a NJ lottery vendor near where I usually buy lunch. The tickets are sold by a machine. Despite the record jackpot there were no lines to speak of but it did take me a few minutes to figure out the process. I didn't win of course but I figure I easily got $2 worth of entertainment out of my ticket.

Saturday, January 9, 2016

They

Kevin Drum praises the rise of "they" as a third person singular gender neutral pronoun which is fine but he seems to think it should replace all uses of "he" or "she" which is bizarre. "They" is for use in cases where you don't wish to specify a gender. For a (purely hypothetical) example "one of my co-workers is cheating on their timesheets".

Saturday, December 26, 2015

Investment Mistakes

I recently read "Investment Mistakes Even Smart Investors Make and How to Avoid Them" a 2012 book by Larry E. Swedroe and RC Balaban. This book devotes a few pages each to a list of 77 investment mistakes. I found this format a bit disjointed and annoying. I read the book straight through perhaps it is more suitable for dipping into from time to time.

For the most part I found the advice in the book unobjectionable. It makes the case for using index funds and not trying to beat the market. This is good advice for most people but these days it has become a type of conventional wisdom that can be found in many books.

One point of disagreement I had concerns modern portfolio theory (MPT). In the MPT framework the markets are rational and the only way to increase your expected returns is to accept more risk, and not just any risk but non-diversifiable risk. MPT is elegant but it is doubtful that it is in total agreement with reality. In other words real markets probably aren't completely rational. But this book totally ignores that possibility and makes deductions based on MPT that depend on markets being rational. So for example mistake 22 (p. 70-74) which compares value and growth stocks deduces from the putative greater returns from value stocks that they must be riskier than growth stocks. The problem is empirically this doesn't appear to be the case. In my view to the extent that the excess returns from value stocks are real a more plausible explanation is that investors find (or found in the past) growth stocks more exciting and were willing pay a little more for them on that basis. Causing the more boring (and hence cheaper) value stocks to outperform a little. And of course as with any other market anomaly once it becomes widely known it is likely to go away.

So in summary I didn't really care for this book. In part this is because I have read a bunch of books with similar advice. So although I don't think the book is terrible I don't see any special reason to recommend it.

Saturday, October 10, 2015

Boomerang

I recently read Boomerang, a 2011 book by Michael Lewis based on magazine articles he wrote in 2009, 2010 and 2011. These articles looked at Iceland, Ireland, Greece, Germany and the United States in the aftermath of the financial crisis. I generally like Lewis as a writer and I found the book entertaining and a useful reminder that the excesses that led to the financial crisis were not confined to the United States.

In Iceland the problem was the banks. They grew extremely large (compared to the economy of Iceland) by making lots of bad loans around the world. The rapid growth should have been a red flag as credit worthy borrowers are a scarce resource that other banks will compete strongly for. This makes it hard for a bank to grow rapidly while maintaining high loan standards. Obviously there is less competition for bad credits so it is easier for a bank to grow rapidly if it makes a lot of low quality loans. But this generally doesn't work out too well in the long run.

In Ireland the problem was an amazing property and construction boom which Irish banks fueled with easy credit. When the bubble inevitably popped the banks became insolvent and would have failed had not the Irish government made a dubious and extremely costly decision to guarantee all their debt. In the US there is a lot of loose talk about taxpayer dollars bailing out the banks but in fact the government profited overall by supporting the banks (since as it turned out they were fundamentally sound). This was not the case in Ireland.

In Greece the problem (as least as related by Lewis) is that the Greek people individually and collectively are not credit worthy. So it was a big mistake to admit Greece to the Euro as this gave the false impression that Greece was credit worthy. So a lot of bad loans were made to Greece.

The German problem was a little different. Germany was saving more money than could be productively invested in Germany. So the German banks looked to invest abroad. Foreign investing can work out but you have to be careful you don't get stuck with a bunch of garbage the locals have sensibly passed on. The German banks failed to be adequately cautious thereby acquiring a lot of bad loans and a worldwide reputation for stupidity.

I thought the final chapter on the United States was the weakest in the book. Lewis discusses the financial problems of some state and local governments but in a big country like the United States there will always be some problems. Lewis doesn't really make the case that these problems threaten the country as a whole.

So in summary I can recommend the book as a good example of its genre.