October and November Update

I never provided an October update so I will combine the October and November update into one post.

1. Reading

I completed 8 more books in October and November bringing the total to 48 books this year. This number is right in line with my goal of reaching 52 books by the end of the year.

  • Daring Greatly: How the Courage to Be Vulnerable Transforms the Way We Live, Love, Parent, and Lead by Brene Brown
  • Born for Love: Why Empathy Is Essential and Endangered by Bruce D. Perry and Maia Szalavitz
  • The Price of Altruism: George Price and the Search for the Origins of Kindness by Oren Harman
  • Toxic Charity: How the Church Hurts Those They Help and How to Reverse It by Robert D. Lupton
  • Tricked (The Iron Druid Chronicles #4) by Kevin Hearne
  • Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhigit Banerjee and Duflo Esther
  • Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel and Blake Master
  • The Slow Regard of Silent Things by Patrick Rothfuss

I chose many of the books in an effort to understand effective charity. These books introduced the many intricacies for giving time and money effectively. Ironically, the books suppressed my initial enthusiasm for pursuing more selfless acts. Giving money directly can lead to dependency.  Some of the books describe studies showing that the poor of the third world will often direct the money for useless items like cigarettes and alcohol rather than education for their children. The books didn’t provide any insight on what direction to take but at least gave me a much better understanding of many pitfalls and limitations associated with charities. Of all the books, I liked Toxic Charity by Robert Lupton the best.

2. 365 Opportunities

I added a few ideas but no significant progress on this list the past two months. At this point, I’m not actively pursing this goal anymore although I do plan to jot additional ideas into this list.

3. Exercise More Consistently

I really fell behind on my running in October and November. I believe the colder temperatures were mostly to blame. In December, I will try to be more active either by doing some runs (when temperatures permit) or working my scrawny muscles with the dumbbells.

4. Classes

I finished the Introduction to Computational Finance and Financial Econometrics from the University of Washington. I ended up dropping the Giving 2.0 class and taking a class on Data Management for Clinical Research from Vanderbilt University. It was a perfect time to take this class as many of my tasks at work are related to clinical research. I am a week or two away from completing this class, which will fulfill my New Year’s Resolution of completing 5 courses in 2014.

5. Build Something

I fail at this one every month. At least my failure is consistent! That counts for something… maybe?

Markowitz and Me

Setting the Stage

When I was graduating high school, my dad had a moment of genius. He gave me a small amount of money to open a brokerage account to start investing in the stock market. Even though the amount of money was small (maybe $1000), I was given a valuable opportunity to jump in and learn a lot about investing, without much at stake.

Back in 1998, I invested in a small number of stocks. I didn’t have a real strategy other than I wanted to invest in companies I liked and that I felt would continue to grow in the future. Most of my decisions were based on qualitative reasoning. For example, in the late 90’s, the internet was just emerging as the huge success it is today. I chose to invest in FedEx because I believed that more people were going to buy stuff online rather than traditional brick-and-mortar stores and all that stuff would need to be shipped by either UPS, FedEx, or the Post Office. The growth of China was also constantly in the news so I thought that Caterpillar (CAT) would prosper due to all the construction equipment they would be selling to China as the country developed its infrastructure. That was the degree of thought that led me to buy these particular stocks.

Around that time, I bought the following stocks. As I’ve always taken a buy-and-hold approach, I still own most of these stocks today. For the most part, I split my initial investment evenly between these five stocks.

Caterpillar, CAT
FedEx, FDX
Microsoft, MSFT
3M, MMM
Barnes and Noble, BKS

For the past month or two, I’ve been taking an online course from the University of Washington titled Introduction to Computational Finance and Financial Econometrics. I’ve learned a ton in the past 9 weeks from both the lectures and the programming exercises in R. After taking this class on computational finance, I thought it would be interesting to compare the results of that initial portfolio with what could have been achieved using the Markowitz theory and the assumption of constant expected returns.  Essentially, the goal is to determine the optimal mix of a given set of stocks to minimize the amount of risk you are taking to achieve a given return. The crazy thing is that even after all this high-level analysis, there is no guarantee that you would be better than just dumping your money in an index fund or selecting some random mixture of the stocks.

How did the original portfolio perform over the past 16 years?

The following chart shows how much $1 invested in the summer of 1998 is worth today (end of October 2014). For example, $1 invested in CAT in 1998 is now worth approximately $5.75. Alternatively, 1$ invested in BKS is only worth about $1 today. With that $1000 investment split evenly between these 5 stocks, the current value of that portfolio would be $3969.  For comparison, the same money invested in the S&P 500 would be worth $2308. Ironically, this portfolio would have significantly outperformed the S&P500, although I am confident this was simple luck, nothing more.

Stocks5

If it was 1998, what would be the global minimum variance portfolio?

The minimum variance portfolio is the mixture of stocks that is predicted to be the least risky. To calculate the MVP, we need to figure out some statistics of the stocks. We will use the data from 1993-1998 to quantify the statistics. The average and variance of monthly returns for these five stocks are shown below.

CAT FDX MSFT MMM BKS
Mean 0.0196 0.0145 0.0416 0.0152 0.0199
Variance 0.0046 0.0063 0.0065 0.0028 0.0096

Using these statistics, we can determine the global minimum variance portfolio – the mixture of stocks that have the lowest risk based on the statistics from the past five years. The weights of each stock in the global minimum variance portfolio are shown graphically below. The predicted performance of this portfolio was 1.7% per month with a standard deviation of 3.9% per month.

global_min_varWhat would be the efficient portfolio for these stocks?

The efficient frontier is the maximum expected return you can expect to achieve for a given risk level, as measured with the portfolio standard deviation. The global minimum variance portfolio is the left-most point on the efficient frontier shown below. As you can see, there are other options along the efficient frontier with greater potential returns but with greater risk (x-axis). The exact portfolio you choose is basically determined by your risk tolerance. If you don’t mind taking on more risk, you can potentially get much larger returns. When all said is done, because the stock returns are all over the place, even the efficient frontier has a lot of uncertainty.EfficientFrontierHow would the global minimum variance portfolio would have performed since 1998?

The global minimum variance portfolio would increase from $1000 to $4911, which is much better than both my equally weighted stock portfolio ($3970) and the S&P500 ($2308).  Recall that the global minimum variance portfolio was intended to represent the least risk although it did amazingly well over that 16 year time horizon. I admit that 16 year time horizon is probably longer than typical but these are definitely nice results. With that being said, I’m still going to be piling all my savings into index ETFs.

 

 

The quote of the day from Theodore Roosevelt:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

September Resolution Update

1. Reading

I completed three additional books in September bringing my total book count up to 40, which puts me on target for completing 52 books this year.

  • A Dance with Dragons (re-read) by George R.R. Martin
  • The Broken Eye by Brent Weeks
  • Living High and Letting Die by Peter Unger

Living High and Letting Die was a philosophical book about the morality of providing for the underprivileged, particularly in Third World countries. The book contains many interesting scenarios that forces you to critically consider what is important. For example, if you saw a child drowning, you would be morally obligated to save that child. However, there is no such moral drive to help save a child living on the other side of the world from malnutrition and starvation. One life has no more value than the other but we have huge differences in how we respond to these crises.

2. 365 Opportunities

I added 12 new ideas to my list for a total of 102 ideas. Although I fell short of my goal for the month, I do think I had some better quality ideas this month. For October, I plan to generate 15 new ideas.

3. Exercise More Consistently

I exercised consistently until the last week of this month, when the exercise routine fell apart partly due to stuff at work and partly due to laziness. I plan to re-start the exercise tomorrow – I definitely do not want to let my fitness to deteriorate to where I was earlier this year.

4. Classes

The Introduction to Computational Finance and Financial Econometrics from the University of Washington is going well. I am approximately half way through the class and am learning some interesting concepts in financial analysis. I also signed up for my 5th class of the year which is called Giving 2.0, which is a class on philanthropy provided by Stanford. This class helps me fulfill my resolution of completing 5 courses this year in addition to working on being more selfless.

5. Build Something

Nothing outside of what I build at work. October is a new month.

TODO: Increase Selflessness

As I continue to assess my 2014 resolutions, I have a growing concern that they are too self-centered. Reading a certain number of books and completing a number of classes are resolutions related to life-long learning. Improving my fitness level to live an active lifestyle in my later years is the motivation behind the exercise resolution. Building things and brainstorming entrepreneurial opportunities are intended to improve my creativity. This last category may be selfless if geared toward helping others, but I have not approached the resolution in this manner.

More emphasis on selfless and altruistic goals is needed. Unfortunately, knowing where to start is difficult. The easiest and most obvious solution is to give money to charities yet I am reluctant to do this. Departing with the money is not the problem – it’s the fact that giving money is effortless. It seems that helping others should require some minimal amount of effort and consideration. For example, how do you effectively help others without being demeaning or potentially harmful, that is, causing the recipient to become more dependent on charity? How can you maximize the return on charitable giving of money or time? Are there metrics to track the effectiveness of a particular activity?

Remember that old proverb about giving versus teaching:

Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.

Both giving and teaching are altruistic but teaching has much more value for the recipient over time. A judicious and well-reasoned approach to charity can help ensure future activities have the greatest impact possible.

I’ve been dwelling on the uncertainty of how to proceed for several months. For September, I want to formulate a plan and start taking practical steps in the right direction, rather than continue wallowing in this uncertainty as I have in the past.

For my first step, as a geek, I intend to find some books that relate to these issues. Here are a few relevant books that look interesting and have been added to my to-read list:

  • Living High and Letting Die by Peter Unger
  • The Price of Altruism: George Price and the Search for the Origins of Kindness by Oren Harman
  • Born for Love by Bruce Perry
  • Daring Greatly: How the Courage to Be Vulnerable Transforms the Way We Live, Love, Parent, and Lead by Brene Brown
  • Toxic Charity: How the Church Hurts Those They Help and How to Reverse It by Robert Lupton

The hope is this initial research will provide a roadmap of how to proceed. This WordPress site is intended to be both a repository of ideas and a means to hold myself accountable by tracking my progress. For whatever weird psychological reason, I am more likely to accomplish a goal if I write it down, particularly on this site, as has been illustrated with this year’s resolutions. I will be careful not to disclose too much of what I am doing, especially as I don’t want to broadcast my good deeds. Fortunately, I can’t remember the last time I had a visitor to my site, so that shouldn’t be much of a concern.

Resolutions – August Update

1. Reading

After surpassing my New Year’s Resolution of reading 30 books, I set the goal of reading 52 books, one for each week, by December 31. In August, I completed five books:

  • A Short History of Nearly Everything by Bill Bryson
  • The Sixth Extinction: An Unnatural History by Elizabeth Kolbert
  • Hammered (The Iron Druid Chronicles #3) by Kevin Hearne
  • Fool’s Assassin by Robin Hobb
  • Finance and the Good Society by Robert Shiller

I enjoyed most of these books with the exception of The Sixth Extinction, which I classified as 3 out of 5 stars. My favorite for the month was the Bill Bryson book, which is an entertaining overview of what we currently know about life, earth, and the universe from science. My total number of books comes to 37, which puts me slightly ahead of schedule (this is the 36th week) to reach 52 by the end of the year.

2. 365 Opportunities

My New Year’s resolution of identifying 365 opportunities was intended to help change my perspective and improve any entrepreneurial tendencies that I may have, if any. Unfortunately, I have consistently underperformed in this particular resolution. Last month, I reduced the August goal to just 15 opportunities to make the goal more obtainable.

This reduced goal may have helped as I came up with 17 opportunities. Some ideas are interesting and have potential; others are ridiculous. I’m ok with this – I want to develop the skill of seeing opportunities around me, without worrying about generating the perfect idea. For September, I will attempt to identify 20 opportunities.

3. Exercise More Consistently

August was a good month for achieving my fitness goals. I exercised on all but one day in August when I was feeling sick. A screenshot of my monthly progress is shown below and the original graphics are available here. The original goal in August was to alternate between strength training with my new dumbbells and running 5km. As you can see, I did pretty well with alternating schedule with the exception of the first 3 days in August where I was avoiding running due to some slight pain in one of my knees. The pain was most likely due to the age and mileage on my running shoes. I have not had any issues since switching to the new shoes.

Screen Shot 2014-09-01 at 11.17.04 AM

 

For running, I achieved a 7:20 pace for a 5km distance. My goal was to achieve a 7:15 pace but that was probably too ambitious. Maybe the 7:15 pace can be achieved in September. Since May 10th, I’ve run approximately 250 miles – I never thought I had the willpower to run this consistently. Screen Shot 2014-09-01 at 11.28.03 AM

For September, I plan to run 2 days to every day of strength training. I enjoy running more than strength training and September may be the last month for comfortable running weather before cold weather arrives.

4. Classes

I started my fourth class for the year – Introduction to Computational Finance and Financial Econometrics from the University of Washington. This subject is quite different from my typical classes (i.e. engineering, math, science) but I’ve always been intrigued by investments and would like to learn more. Who knows – maybe some of the concepts I learn in this class can be transcribed into my current work. This class continues into November. I will need to take one more class to achieve my goal of 5 classes this year.

5. Build Something

This resolution continues to suffer relative to the others. Most of my “building” has been web-based design such as the graphics summarizing my fitness progress (see menu items above) and reading progress (not posted yet).

One of the things that hold me back is that I often think most of my ideas are stupid and lose any motivation of moving them past the idea stage. For September, I should just make something regardless of it is stupid. One idea would be a bird house with an embedded camera that is triggered when a bird lands. See – stupid idea but I should do something other than just allow a whole year go by without completing anything.

Resolutions – July Update

1. Reading

New Year’s Resolution complete – I have surpassed my goal of reading 30 books this year! In fact, with the completion of the Steve Jobs biography, I read 32 books in the first 7 months of this year. I’m going to extend my resolution and attempt to complete 50 books this year.

The five books I read this month were:

  • Hounded – The Iron Druid Chronicles (Kevin Hearne)
  • Essentialism: The Disciplined Pursuit of Less ( GregMcKeown
  • Hexed – Book 2 in the Iron Druid Chronicles (Kevin Hearne)
  • Flow (Mihaly Csikszentmihalyi)
  • Steve Jobs (Walter Isaacson)

My favorite book this month was the Steve Jobs biography by Walter Isaacson. Although the book was published shortly after Jobs’ death, I held off on reading it simply because I had heard the stories about how cruel he could be. I didn’t want to waste days of my life reading about such a person. Well, a co-worker urged me to give the book a shot and I’m glad I did. Although the book details Jobs’ cruel and weird personality, I was impressed with his drive for making beautiful products and I found myself admiring his attention to detail and his perfectionism for Apple products. Although he was never charitable to the extent his rival Bill Gates has been, I did appreciate his modest and minimalist (relatively speaking) lifestyle. The takeaway for me is that Jobs had many awful attributes but there were other attributes that were admirable. I hope I can show the same devotion for the products I make in my current and future endeavors.

Flow was a close second.

Essentialism was my least favorite book. My critique is not specific to Essentialism but to perhaps the whole genre of business/ self help books. So many of these books have a very simple message that could be summarized in a few pages (like a magazine article) but the authors drag on for way too long.

2. 365 Opportunities

No progress on this resolution. I have been generating new ideas but haven’t really been keeping track of them. I’m going to make a specific goal for August – I want to add 15 ideas to my list.

3. Exercise More Consistently

I continued to improve my fitness in July. My progress is illustrated in the figure below. Blue represents days I ran, typically 5km. Light blue is a bicycling day. Red indicates days that a did some strength training. Dark blue are hiking days and light gray were rest days.

July Workout Progress

I improved my 5km running times. At the start of July, my fastest 5k time was 7:53 (average pace) and I struggled to run faster than 8 minute miles for most of the June runs. In late July, I ran a 7:30 (average pace) 5km and can pretty consistently run faster than 8 minute miles. I’m pretty happy with my progress and will try to improve my times in August.

Screen Shot 2014-07-31 at 8.02.08 PMUnfortunately, I have experienced some mild soreness in my left calf and knee in the past couple of runs so I am taking a few days off from running in the hope these pains will go away. In fact, I plan on doing more strength training and bicycling this month as I fear I may start having joint issues if I continue to run nearly every day. In July, I had six days of strength training. In August, I would like to increase the number of strength days from somewhere between 10 and 15 days. I even bought a dumbbell set and bench so I can do these exercises at home.

I need to find a way to motivate myself when it comes to strength training. I am proud when I complete a run. I feel nothing during or after strength training, only a deep chasm of emptiness. Ok, it’s not that bad but, unlike running, I don’t feel any sense of pride and I am not motivated by changes in appearance, which seems to be the most common reason people lift. Finding that motivation will be another goal for August.

4. Classes

No classes in July. Many of the online classes are timed with the college semesters so I am expecting that I will start taking more classes in September when colleges start their Fall semester.

5. Build Something

Absolutely nothing. I am a pitiful excuse for a human being.