Archive for December, 2011

Well, it’s the end of the trading year and it’s time for me to review how well I did on the stock market in 2011.  I crunched the numbers today and here’s how I did:


But that’s alright.  It wasn’t a great year for anyone on the market:

US Stocks – the US Stock market, as measured by the S&P-500 (not the Dow Jones, which is useless) was flat on the year.  It was up 0% (not a typo).  The Nasdaq, which contains newer stocks and more tech stocks, was down -1.8%.  Pretty flat.

Europe – Europe discovered it has a serious financial problem on its hands and was down –14% this year.

Far East – The far east doesn’t have the same financial problems as Europe, but their stocks did worse and they were down –17% this year.

Emerging Markets – To check this, I use Vanguard’s emerging markets ETF.  It is made up of China, Korea, Brazil, Taiwan, South Africa, Russia, India and Mexico for 85% of its countries.  So, there is a little overlap with this one and the Far East.  Unfortunately, this group of countries was a disaster, down –21%.

Thus, after lagging everyone for years, the US outperformed nearly every other country, and did so easily.

When I compare my performance, I compare myself relative to everyone else.  How did I do compared to everyone else?  First of all, I pick a benchmark.  Because I invest globally, I pick an index that invests globally and the one I use is the iShares ACWI (all countries in the world index).  Here’s how I did against the various benchmarks:

Against the ACWI – I beat ACWI by 7.8%, excluding dividends.

Against the S&P-500 (most common measure of the US market) – I underperformed by –2.0%, thanks to my exposure to Europe and emerging markets.

Against the Nasdaq – I underperformed by 0.2%, which is almost (but not quite) a tie.

Now, comparing myself against the US market is a little unfair because the foreign stocks dragged me down and normally I would never trade foreign stocks.  How did I do against the US markets excluding my foreign positions?  This includes my passive portfolio, my trades in my personal account and my trades in my Roth IRA.

Against the S&P-500 – I beat the S&P-500 by 7.8%.

Against the Nasdaq – I beat the Nasdaq by 9.6%.

That’s pretty good, I’d say that I am pleased with my performance this years (especially since I beat my benchmark by a good amount).  I haven’t included dividends.

However, there’s still one more important question.  How did I do against the Dave Ramsey portfolio?  To check that, I included all of the dividends that I got and then back and added all of the dividends to a portfolio that he recommends using passive indexes using Google Finance.

Against Dave Ramsey – I beat the Dave Ramsey portfolio by 4.8%, including dividends.  This was the most important one because I lost (by a lot) in 2010 and 2009.


There we go.  Much of my outperformance was accomplished by getting out of the market before all of my gains were erased as it crashed in the middle part of the year, and then not doing anything during that time period.  I just blindly followed my lazy strategy and rebalanced everything, collecting dividends.

I can definitely outperform the market by a wide margin when it is going up but when it is down I give up most of my gains.  I do this every time… except this year when I only gave up part of them.  Granted, it was a big part but at least it was everything.

Maybe I am getting better at this.

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Peer pressure

Suppose that you are at work and you have brought your own lunch that day.  Your co-workers walk into your office and ask if you want to go to lunch.  You relent a bit, but they further insist.  What do you do?  There’s no one else around.

Here’s what I did: I went with them.

But here’s the thing, you have to learn the office politics if you want to get ahead in life.  There’s a book called Never Eat Lunch Alone, or something like back.  Basically, you need to socialize with your co-workers.  Building social relationships come in handy because people like you more and we like to reward the people we like.  Two people who are both equally capable can do well in life, but the more social one is more likely to get ahead.

That’s the way things work in real life.

I’ve been guilty during the past year of violating that lunch thing.  I bring my food from home all the time now and don’t go to the café so much.  That’s probably a mistake.  Not drinking after work with my co-workers is also probably not the best thing for my career, either.  People like sociable people, that’s the rule.  And I’m not always that sociable, unfortunately.

But today, I made an exception.

For the betterment of my career.

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I’ve written in the past here that there are some things I agree with Dave Ramsey about, but other things I think he is wrong. 

Well, it turns out Peter Schiff is another guy who got things wrong.  If you don’t know who he is, Peter Schiff runs a money management company and by his own admission is one of the 1% (he made a video where he went to Occupy Wall Street and talked with the protestors).  Thus, his is very successful in real life.  However, his big thing is that the US government is printing too much money and spending too much money.  As a result, the US dollar will decline in value and the US economy will decline.  It will be eclipsed by just about every other country.  He view on the US is very bearish (negative).  He continually advises his readers to buy precious metals, especially gold and silver because those are the two metals that hold their value when currencies decline.

Still, I subscribe to his blog feed because I like what he has to say even though I am not sure everything he says is right.  His latest post was entitled “2012 Outlook: Gold and Stocks.”  Here’s what it says:

I think you are going to have a lot of choppiness in the stock market, but in the end I don’t expect a lot of movement in stocks. I don’t expect a crash or a big run, instead I think prices will continue to move sideways. In terms of the stock markets relation to gold I think it will continue to fall as a ratio.

Schiff has been giving this advice for a long time, as long as I have been reading his blog (since March 2009).  He’s obviously richer than I am, and I am familiar with his beliefs (the US’s money printing press is contributing to inflation and thus dooming the US economy).

So is he right?

Well, let’s go back in time and see how good his prediction was for 2011:

  1. US dollar demise: Schiff does not see much safety in the US dollar.  Schiff says it is not just a dollar collapse, it is a bond collapse too; "avoid any kind of long term bonds, avoid treasuries, and avoid municipal bonds."

    The year is not over yet, there is still one more trading day so this can change, but in 2011 the US dollar is up 1.85%, basically flat.  No collapse in the dollar like what Schiff predicted.

    The 3-year Treasury bond fund (SHY) is up 0.56% (basically flat), 10-year Treasury bond fund (IEF) is up 12%, and the 20-year Treasury bond fund (TLT) is up 28%.  No collapse in treasuries like what Schiff predicted.

    I looked up three municipal bond ETFs (PZA, MUNI, MUB) and they are up 8%, 5%, and 10%.  No collapse in municipal bonds like what Schiff predicted.

    I looked up one long term bond ETFs (BLV) and it is up 16%.  No collapse in long term bonds like what Schiff predicted.

    Indeed, every bond fund I checked was up big this year (and everyone one I wasn’t invested in was up more than mine).  Quite simply, what Schiff predicted would occur this year did not occur.

  2. Buy emerging markets and foreign currencies.  Schiff is focusing on Asia where people work hard, are producing and have savings.

    The emerging market funds (VWO, EEM) were down 20% this year.

    For currencies:

    Japanese Yen: +4%
    Australian Dollar: –0.9%
    Swiss Franc: –1%
    Canadian Dollar: –2%
    Swedish Krona: –3.06%
    Euro: –3%
    Chinese Yuan: –1%
    Mexican Peso: –11%
    New Zealand Dollar: –10%
    Russian Ruble: –4%
    US Dollar: +1.85%

    How did the US dollar do against some other currencies directly?
    vs Singapore Dollar: +1.48%
    vs Hong Kong Dollar: –0.03%
    vs South African Rand: +25%

    Looks like the US dollar did very well this year and held its own against almost everyone, contrary to what Schiff said.  Emerging markets also did poorly, contrary to what Schiff said.

  3. Buy precious metals and commodities.  Stay with gold, stay with silver.

    Gold is up +9% this year, so he got this one right.  However, silver is down –10% this year.  Copper is down 42%, Aluminum is down 45% and platinum is down 25%.  If you were lucky enough to buy a precious metal ETF, you could have made some money but not very much, maybe 3%.

    What about other commodities? The general commodities ETFs (GSG, MOO, DBA) are down 3%, 20% and 11%.

    The fact is that commodities did not do very well this year, contrary to Schiff’s advice.

If you would have listened to Peter Schiff this year, you wouldn’t have done very well in the market.  You would have underperformed it.  Everything he recommended was either flat (currencies), down big (emerging markets) or straight up wrong (collapse in dollar, treasuries and bonds).  He was right on gold but wrong on silver – and every other metal.  That’s 1 out of 7.

Now, you can argue (as Schiff does) that gold is a long term investment and long term, everything he is saying will turn out to be correct.  Maybe.  But for now, his prognostications are no more correct than anyone else’s.

He did say, after all, that this was his outlook for 2011.

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Suntan lotion

While the wife and I were in New Zealand, we were on a hiking tour.  During one of the days, the group went bike riding on the Otago Rail Trail.  This was a 47 km (29.4 miles) bike that was downhill.  You might think that would make it an easy ride, but think again; the incline was slight and the last 1/3 of it was against the wind which made it unbelievably difficult.  Seriously, I nearly died during the last 5 miles of the trek.


If you were to stop pedaling, you would stop moving.  You might say “Well, duh.”  If you said that, you can take that snarky remark right back and eat it because earlier in the trek I did stop pedaling to see how far I would go and it was quite some ways.  But later on, against the wind, I had to exert tons of effort.  What added to the difficulty was that the bones in my posterior hurt and I could barely sit on the seat (it would later take 6 days until they stopped hurting completely).

But anyhow, the point is that day was pretty hot.  In fact, it was probably the hottest day we were in New Zealand.  You may think that since it’s in the southern hemisphere, it must be summer.  Well, two things about that.

  1. We just in the tail end of spring, not quite in summer.  So the weather wasn’t hot.
  2. New Zealand is an island and has a temperate climate in the south island especially, getting much of its weather from either Australia to the east or Antarctica in the south.

Thus, it wasn’t really hot at all during any of our trip except for this one day when we were in the middle of the island, which has a more continental climate.  Therefore, I decided since the day was sunny, I would put on sunscreen.

Now, I don’t know what the people of Neutrogena were thinking, but this sunscreen sucked.  It was not the greasy kind, but wasn’t smooth like you would expect suntan lotion to be.  Instead, this stuff was sticky and gooey.  You put it on your arms and it was hard to spread and smear.  Worse yet, it would leave white residue on your skin and you had to rub and rub and rub it to get rid of it.  We ended up tossing it out later and getting new stuff.

The lack of rub-ability led to dire consequences for me on that bike ride.  Even though I stopped to apply sunscreen three or four times over the course of four hours, a sticky, gooey lotion is hard to rub around really well.  Because of this, I ended up getting sunburned on my white, Canadian legs:


Yeah, check that out, all that red is burned skin.

You can see down near my ankle, there is a little pocket of white where I obviously did rub in the lotion with my thumb.  But the point remains – I reapplied the stuff 3 or 4 times and I still got burned like this.  It’s because I put in on the front of my leg and didn’t rub it on the back.  Had it gone on smoothly, it would have been much easier to apply all the way around because smooth lotion spreads around like that.  It’s just the natural way to do it.  But sticky lotion kind of sticks to the part where I apply it directly with my palm and doesn’t go on smoothly; there is less room for error the way there is with smooth lotion.  It resists being spread around.

The burn was uncomfortable that night and the next day, but got better after that (bones in my posterior were worse after that).  But I learned my lesson – never get gooey suntan lotion.

I’ll pay extra to ensure that.

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The Science of Evil

A couple of days ago, I watched the National Geographic special entitled The Science of Evil.  In it, they took a look at the scientific study of what makes people evil.

Evil is hard to define, but they defined it as (and I am paraphrasing because I cannot remember it) something like intentionally causing harm to others, being aware of it, and not caring or even taking enjoyment in it.  As far as that goes, I can go along with it.

One of the case studies was the Stanford Prison Experiment, conducted by Dr. Philip Zimbardo in 1971.  If you’re not aware of the study, then what happened was that a group of students volunteered to be part of an experiment.  The basement of the Psychology Department at Stanford University was transformed into a prison.  Some of the students were assigned to be guards, the others were assigned to be prisoners.  The experiment was to be conducted over 2 weeks, and the researchers wanted to see the effects of prison life on people.

The results were shocking.

The experiment had to be shut down in only five days.  During that time, the prison guards transformed from ordinary people into sadistic overlords, humiliating their prisoners and forcing them to do acts of sexual innuendo (if this sounds a lot like Abu Ghraib, it should), among other things.  The guards became power hungry and cruel.  It showcased how ordinary people can be transformed into behaving in nasty manners.

Another angle the special explored were refugee camps in Africa.  They interviewed the UN director of distributing food in Sudan, who in turn interviewed survivors of a civil war outbreak.  The women report seeing men with guns killing members of their families, or raping women in front of their husbands, and forcing sons into their militaries.  It’s extremely tragic… and evil.

National Geographic was looking into the science of evil.  Why are some people so evil?

They didn’t really answer the question, but there were some things that they came away with:

  1. They looked at the neurobiology of our brains when faced with moral dilemmas.  Suppose that you are a villager hiding in a hut with your baby in your arms, along with several other people.  Militia men from the outside are walking around, looking for survivors.  If they hear you, they will kill you and all of the others with you.  Your baby begins to cry.  Is it right for you to smother your own baby and kill it so that you and the others will live?  Or do you allow your baby to cry and risk (and probably allow) the soldiers hearing it, alerting them to your presence and thus your likely death?

    When they hook people up to MRI machines and scan their brains when they ask this question, two areas in the brain light up – the pre-frontal cortex (which is part of our neocortex, the thinking part of our brain), and a part of the brain associated with emotion, which is associated with our limbic systems (the non-thinking, or reacting part of our brain).  When people consider this question, both parts of their brains light up and depending on which one receives more stimulating blood flow, that influences their decision (the more emotional parts of the brain tend to lead to more no, it’s not okay to smother your baby answers).

  2. More unnerving was the Stanford prison experiment, and by extension, Abu Ghraib.  The fact is that any of us, in the right circumstances, might just be capable of evil acts.  Indeed, the militia men over in Sudan were ordinary people committing terrible acts.  But why do they do this?  Science does not yet have the answer.

I supplemented this documentary with some research of my own.  I’ve written in other posts that one of the chemicals responsible for the level of goodness we feel when we are charitable is oxytocin.  It’s a chemical that leads us to bond with each other, and humans are social creatures.  That’s why we live in groups (like our relatives, the great apes).  However, not everyone produces this chemical in their brains.  These types of people are sociopaths; they don’t have the same responses to social stimuli that regular people have.  There are other people with neurological disorders but that doesn’t really answer the question of why so many people are evil.  Sociopaths are “only” 5% of the population.

I stumbled across the phrase “the banality of evil.”  According to Wikipedia, the writer of the thesis, Hannah Arendt, describes the thesis that the great evils in history generally, and the Holocaust in particular, were not executed by fanatics or sociopaths, but rather by ordinary people who accepted the premises of their state and therefore participated with the view that their actions were normal.

Explaining this phenomenon, Edward S. Herman has emphasized the importance of "normalizing the unthinkable." According to him, "doing terrible things in an organized and systematic way rests on ‘normalization.’ This is the process whereby ugly, degrading, murderous, and unspeakable acts become routine and are accepted as ‘the way things are done.’"

This position has met with some criticism from others: people do evil things for a variety of reasons, such as some people choosing not to commit evil, or people doing certain things when under intense pressure, or succumbing to strong leadership.

Religious thinkers throughout time have posited their own questions to why evil exists.  For some Christians, evil exists because humanity is estranged from God, the source of all goodness.  Outside of God, all of us are susceptible to doing evil things as the Stanford prison experiment proves.  And as long as we are in these sin-weakened bodies, we will never be able to overcome it on this side of the grave.

It’s an idea worth considering. 

A couple of weeks ago, I read a story about a man in New York city who set an elderly woman on fire.  He poured gasoline on her in an elevator, lit a match and walked out.  She died of smoke inhalation.  His lawyer agreed that it was a heinous action, but the man was also suffering from a mental disorder (he lived in the same building as the woman, did some odd jobs for her and said she owed him $2000).  At least if the man is mentally insane, that partially rationalizes (but doesn’t excuse) his actions.  But at least he wasn’t completely evil.  Can you imagine if he did this on purpose?  It would be the epitome of evil.

I will get harsh here for a minute in order to make you think.  Burning somebody on purpose is exactly what some Christians believe that God will do to unbelievers.  Remember, the “banality of evil” is the process whereby ugly, degrading, murderous, and unspeakable acts become routine and are accepted as ‘the way things are done.’  If God can do <insert any action X> even when it is unbelievably cruel and evil, this normalizes the action. 

That’s why I am cautious of religious speakers who on the one hand claim that God is the source of all good morality, but at the same time rationalize the act of burning somebody alive as necessary, or holy (everything God does is holy), or good (everything God does is good).  If you can rationalize evil acts (burning someone alive) because of an ideology (God must punish sin in an inhumane manner), then how good are you, really, at defining what is good and moral?  It is pretty clear to me that morality precludes acts that are clearly evil.  On the one hand God is the source of all goodness and in him there is no evil.  But on the other hand, he is planning to burn people alive (this is an active verb; no human is going to willingly jump into a lake of fire, someone will have to push them in and keep them there).  This is a contradiction.

In the end, the reason for why evil exists still isn’t solved by science.  No doubt it has to do some with neurobiology and with social factors.  Hopefully one day we can stamp it out completely.

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Drink your water!

Everywhere I go, it seems like the main danger of anything is dehydration:

  1. On airplanes, drink plenty of fluids because if you don’t, you can become dehydrated.

  2. In Antarctica, the two main dangers are sun exposure (due to there being no ozone layer) and dehydration (because the climate is so windy and dry).

  3. After my surgery, I had to drink plenty of fluids to stay hydrated.

  4. I got a major headache yesterday evening; it’s because I didn’t drink enough water later in the day and the living room was really warm where I was spending time (wasting it, mostly).

Man, that’s a lot of demand for water!  The thing is, it can be a bit of a chore to consume enough water so as to avoid becoming dehydrated, but it’s totally worth it.  I get headaches at work from staring at a computer all day, but if I drink water I can stave those off sometimes.

Pretty much any activity you can do, it should include “oh, and don’t forget to drink water.”  We may as well start including it as standard advice like “Get plenty of sleep”, “Brush and floss your teeth everyday” and “Look both ways before crossing the street.”

We need to add “Drink plenty of water every day.”

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Since I’ve been home these past few days doing almost nothing, I’ve had plenty of time to watch National Geographic specials on Netflix.  One I just saw yesterday was called Stress: Portrait of a Killer.

I think everyone has known for years how stress affects people, but nowadays they are measuring its physiological response and what it does to you.  It’s not just a state of mind, stress really can kill you.  Here are some highlights:

  • Stress affects your brain, particularly in the hippocampus which is the part of the brain responsible for memory and learning.  People who are highly stressed have trouble remembering things and learning new things (this explains why I had memory loss after my near fatal accident in Fiji five years ago; I was incredibly stressed and had memory problems for the next 4-6 months).

    It explains why people in stressful situations tend to make bad decisions, and it also explains why people in military go through extensive training – they are trying to make their actions automatic so they don’t have to remember when they are under intense pressure.

  • Stress used to be useful for us humans, and it is still useful for animals.  When zebras on the African Serengeti are attacked by lions, they are highly stressed and release hormones that are associated with stress (adrenaline and one other one).  The body’s main survival parts go into overdrive (extra oxygen flows to the muscles, you become more alert) as you try to stay alive.  Yet after the threat has passed, the zebra’s stress hormones go down to normal.  So you see, stress is used to perpetuate the species and keep the organism alive in response to threats.

    Humans react to stress the same way and release the same chemicals; and well we should, we’re animals the same ways that zebras are.  Yet paradoxically, we react to psychological factors that are not life threatening.  For example, if we’re stuck in traffic, it stresses us.  We get angry and upset and tense.  But why?  To a zebra, this makes no sense.  Our lives are not in danger but we are getting stressed.  Physiologically, this serves us no useful purpose.

  • Researchers in human societies have found links between stress and the level of social stratification.  The lower down the ladder you are, the more stressed you are.  The less control you have, the more stress it leads to.  And people lower down the ladder have more health problems – increased sick days, they are heavier, have more mental health problems, and so forth.

    This isn’t a surprise to anyone, but I realized just how true this is in real life.  At work about a month ago, they had a survey of just the people in my department.  They asked about things like work/life balance, and so forth. The results from the survey were exactly in line with what we know about stress – people in upper management in my department were generally happy with the way things were going, while those lower down in the organization reported more stress and less satisfaction with the work/life balance.  In other words, those lower down the ladder with less control had more stress.

  • Finally, it’s not all bad news.  The effects of stress can be negated.  Laughter is one of the best medicines for stress, and so are social organizations (such as churches).  If you belong to a group of friends, or a strong social organization, these can help you reduce the amount of stress in your life (this is one of the benefits of religious organizations).  Humans are social creatures, and we need strong social contacts in order to live our lives (most of us).

Interesting stuff.

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