Category Archives: Books

Emergence

Like I mentioned yesterday, I finished Steven Johnson’s book on Emergence. Following are various thought provoking tidbits I found:

5 Fundamental Principles to follow if you’re building a system to learn from the ground up:

  1. More is different
  2. Ignorance is useful (..better to build densely connected systems with simple elements and let the more sophisticated behavior trickle up)
  3. Encourage Random Encounters
  4. Look for patterns in the signs
  5. Pay attention to your neighbors

(page 77-78)

Paul Krugman’s (another MIT guy) 1995 lectures entitled “The Self Organizing Economy“, which relies on two primary axioms: 1) There must be a tension between centripetal and centrifugal forces, with neither too strong, and 2) The range of the centripetal forces must be shorter than that of the centrifugal forces: business must like to have other businesses nearby but dislike having them a little way away.

Alexa is a software application that ‘recommends’ websites based on what site you’re currently visiting, “… the ‘intelligence’ of Alexa is really the aggregated wisdom of the thousands — or millions — of people who use the system. The computer churns through the millions of ratings in its database, looks for patterns of likes and dislikes, then reports back to the user with its findings.” Further, “It’s worth noting here that Alexa is not truly a ‘recommendation agent’; it is not telling you that you’ll like the five sites that it suggests. It’s saying that there’s a relationship between the site you’re currently visiting and the sites listed on the pull-down menu.” (page 124) Curiously, it looks to me like Alexa is the technology that powers a large part of Amazon’s personalization engine.

Official Emergence magazine

Marco Dorigo’s Ant Colony Optimization project

Further reading:

Weaving the Web: The Original Design and Ultimate Destiny of the World Wide Web

How Buildings Learn: What Happens After They’re Built

A History of Civilizations

War in the Age of Intelligent Machines

The Computational Beauty of Nature : Computer Explorations of Fractals, Chaos, Complex Systems, and Adaptation

Alan Turing: The Enigma

Gödel, Escher, Bach: An Eternal Golden Braid

Emergence: From Chaos to Order

The Death and Life of Great American Cities

Dynamic Patterns : The Self-Organization of Brain and Behavior

The Age of Spiritual Machines: When Computer Exceed Human Intelligence

Bots: The Origin of New Species

Turtles, Termites, and Traffic Jams : Explorations in Massively Parallel Microworlds

The Race for Consciousness

The Clustered World : How We Live, What We Buy, and What It All Means About Who We Are

The Only Guide To A Winning Investment Strategy You’ll Ever Need

Finished “The Only Guide To A Winning Investment Strategy You’ll Ever Need” on Thursday. If you’re not working in a bank and you didn’t pay attention during Finance during school, you’ll appreciate this book. I wanted to have a deeper understanding of stocks, bonds, mutual funds, and all the related financial jargon. This book did the trick. I tried summing up the book a couple posts ago, but I think that Jonathan Clements does it best in the WSJ:

“The case for indexing rests on a piece of unassailable logic. Investors, as a group, cannot outperform the stock market, because together they are the market. In fact, once costs are figured in, investors collectively are destined to lag behind the market average.” (source)

Various quotes and tidbits I want to remember/record:

Re: trying to pick the top stocks/mutual funds vs. investing in an index fund: “Jonathan Clements, a columnist for the Wall Street Journal, said it best: ‘I believe the search for top-performing stock funds is an intellectually discredited exercise that will come to be viewed as one of the great financial follies of the late twenthieth century.” (pg. 38)

Re: market timing: “During the 3,541 trading days of 1980-1993, an investor who built and held a portfolio consisting of the S & P 500 would have realized annualized returns of 15.5 percent per annum. If, in an attempt to time the market, an investor missed out on just the best 10 days, the annualized return dropped to 11.9 percent. This investor, by being absent from less than 0.3 percent of the trading days, would have lost over 23% of the returns available for the entire period. If the same investor had had the misfortune of missing out on the best 40 days (or about 1 percent of the total trading days), his or her annualized returns would have dropped to 5.5 percent, a loss of almost two-thirds of the passive investor’s returns. Another way of looking at this is that the returns of the investor who missed out on just the best 40 days could have been matched by owning risk-free certificates of deposit at a local bank.” (pg. 69)

Re: volatility and average annual return: “… These two examples point out the powerful impact that volatility can have on a portfolio and the relative unimportance of ‘average annual rates of return.’ Investors can’t spend average rates of return. What should be of greatest concern to investors is the compound growth rate of an invested dollar. Next time you read an ad for a mutual fund, check to see if they are disclosing the average annual return or the compound growth rate of each invested dollar. The latter is the real gauge of a fund’s performance and the only way to compare that performance to any other’s.” (pg. 138)

check out the sample portfolios on page 160, the Asset Allocation Time Horizon Guideline on page 174, review the chapter on rebalancing and style drift (page 193).

summary in chapter 11:
” · Markets are generally highly efficient!
· While it is not impossible to outperform an efficient market, the odds of it being done, even by professionals, are very low.
· Because past performance is not a reliable predictor of future performance, it is impossible to forecast which money managers and market gurus will be the lucky few.
· The question of whether or not markets are efficient is an interesting academic question. However, the real question facing investors is whether the correct strategy is active or passive management. I’ve given clear evidence that even when market ineffciencies may exist, markets are not so inefficient that active managers can overcome the costs of their efforts and the taxes generated by their trading activity.
· With institutions now controlling a market share approaching 90% of all trading, the competition among professionals is too tough, thereby making active management nonproductive.
· Efforts to time the market are doomed to fail, because so much of the action occurs over very brief time frames.
· The use of active managers causes an investor to lose control of the asset allocation decision, the single most important determinant of the expected return and risk of a portfolio. Active managers expose investors to style drift, which can have unanticipated and nasty consequences.
· Most of what is published by trade publications and the rating services and aired by so-called financial experts is really nothing more than investment pandering. To attach anything other than entertainment value to such reports can be dangerous to your economic health. These experts are all part of the 6% solution — the loser’s game — hyped by Wall Street because it is in its best interest, not yours.” (pg 226)

Further reading:

Capital Ideas and Against the Gods by Peter Bernstein
The Portable MBA in Investing edited by Peter Bernstein
Bogle on Mutual Funds by John Bogle
Investment Policy by Charles Ellis
A Random Walk Down Wall Street by Burton Malkiel
Investment Strategies for the Twenty-first Century by Frank Armstrong (available on the internet)

index funds book

I’m trying to understand investing, picked up a book on index funds, and now I’m doing web research. (in short: index funds premise is ‘passive’ management… you invest in the S&P 500 and expect that over 10 years your investment will outgain an ‘actively’ managed portfolio because your financial adviser a) cannot consistently pick winners and b) financial advisers make money by churning… getting you to sell this and buy that, in addition to their ‘management’ fees. So what’s *really* true? Gotta find both sides of the argument right?

Index Fund Critics

Fool.com on S&P 500 — excerpt: “(Psst. There’s a reason that all these magazines don’t tell you how simple mutual fund investing really is. Scientific marketing surveys and focus group testing have determined that magazines with covers that read “Index Funds: Still The Best Choice!!!” every single month really wouldn’t sell as well as magazines that promise “Our BRAND NEW 10 Best Mutual Funds To Buy RIGHT NOW!” Sad, but true.)”

Anyone else have an opinion?

Butterfly Economics

Finished “Butterfly Economics” tonight. This book was like going back to school, only more intense. Part calculus, part linear algebra, part business management, and part economics, it’s central tenet is that conventional economics (the ecnonomics you and I were taught in school) is wrong in viewing “… the economy and society as a machine, whose behaviour, no matter how complicated, is ultimately predictable and controllable.”

What random things will I take away from reading this book?

Model building: Academic economists spend their large portions of their careers building models to explain or prove theories. Turns out there are multiple ways of building models to solve problems: multi-variate and uni-variate, which I’ll have to remember sometime to research. The guts of the book hinge on a model that describes the movements of ants (very little mention of butterflies for you Lepidopterists out there) between two equally distant and equally attractive (as far as ants are concerned) food piles.

Empirical Data: Much of the research in this book wasn’t possible until the early 1980’s which brought cheap computer power to the masses. Many economic theorems just couldn’t be tested empircally because they were too large for computers or the human mind to calculate.

Interacting Agents: “Once we admit the possibility that individual tastes and behaviour can be influenced directly by those of others, gaining a lead on rivals can create a virtuous circle in which the market position of a company or brand becomes stronger simply because it is already seen to be popular.”

Great book!

new cms book

Haven’t read it yet, but looks interesting. I think it’s interesting that there aren’t that many books on Content Management. Because it’s easy? Because it’s hard to define? Because it’s product specific? Who knows?