Taxing Behavior

I have been speculating how the tax game will change on 1/1/11 - just 8 short months from now. The political climate has created uncertainty in the most important area of investing and economic commerce - taxes. I think it is totally inaccurate when they say - don't base your investment decisions on taxes. When the tax system can swing your after tax returns by 5% - 20% (e.g. Capital Gains increasing 5% to 20% and Dividends at a marginal rate of 36.9% vs 15%), it pays to take notice ahead of the rules change.
So for me - taxes do change behavior. Like business the incentives (positive or negative) need to be carefully thought out or you will create the wrong behavior (and end result). And it becomes worse when you attempt to model an incentive across the entire social demographic population of the U.S.A.
For me - I just enjoy reading the rules of a game and try to understand how people will play it to "win". Winning becomes subjective when the rules change ---- and that is a taxing behavior.

Sell in May and Walk Away

The financial analyst late April bromide saying "Sell in May and Walk Away" begins to enter the vocabulary as the Dow hits over 11,205 (April 26, 2010) and has run up 71% since March 9, 2009 low of 6547. You know me a numbers guy and interested in economic behavior psychology - I'm listening carefully to what people are saying - but more importantly watching what they are doing.

Market timing is so tempting - so is beating everyone else to the front row in festival seating. We all hate to be left out of the exuberant party of stock market gains. So when did you buy back in? March 2009? May 2009? November 2009? or April 26, 2010?

"It's May! It's May!
The lusty month of May!...
Those dreary vows that ev'ryone takes,
Ev'ryone breaks.
Ev'ryone makes divine mistakes!
The lusty month of May!"
- Lerner and Lowe "Camelot"

Elegy

New words can pop into your vocabulary at anytime. These words are probably used more often than you were aware -- when suddenly they come into your existence. Today it was Elegy - described by NPR Host Neal Conan of the Talk of the Nation as the words spoken at the end of a StoryCorps remark by Doorman Ed Trinka of the New York Plaza Hotel remembering his father. (wow - what a chain).

Did he mean Eulogy? - No as I looked up the word - Elegy was very precise - a form of lyric poetry reflecting on something strange or mysterious - but usually reflecting on the death of someone.

So what were the reflecting words of Ed Trinka's father?

"Be such a man and live such a life that if everybody lived a life like yours, this would be God's paradise".

And where did this new existence of the word Elegy take me?? - to the song "Elegy" by Bear McCreary in the Battlestar Galactica Season 4 Soundtrack.

Strange - Very Strange and mysterious.

Erasers

 I always liked doing work in pencil - and using a pencil with big eraser. Those add-on erasers were always handy since the original equipment eraser always ran out before the pencil.  For the big jobs the rectangle soy based gum was the best for avoiding paper tears and unsightly smudge marks. 

Ellen has been collecting Japanese erasers.  I remember some odd shaped add-ons  in my day - but nothing compared to this sophistication.  These erasers dismantle into many "puzzle" pieces. Obviously for collecting and admiring and not for the function of making lead disappear.

"Everyone makes mistakes - That's why there is an eraser on every pencil" ---  Japanese Proverb

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Losing your Wallet

Last week my palm pilot (yes I am still a technology dinosaur with an old palm pilot) calendar "died" and my last backup was February 18.  The only thing worse than losing your calendar is losing your wallet (or your  cell phone).  That empty feeling of - OH NO!  my life is lost.

You might think a person like me - skilled for 25 years in technology would follow the practice of regular and frequent back-ups.  NOT -  "the cobblers children go barefoot".  Not backing up is like the youthful feeling of ignoring your mortality.  Risk taking or laziness - how many times do you have to be "burnt" before you learn the lesson of discipline.
 
So if you have not lost your wallet recently -  great!  But how long has it been since your last backup?

Supercentenarian

My parents mentioned a relative (my Grandmother's sister) who may soon enter the Supercentenarian club - the one in a thousand centenarians who make it past the age of 110. There are 72 women and 3 men - do the math.

First you have to make it into the centenarian club (age 100 +) which means you are a first-born daughter from a large
family, born in January and raised on a farm in the West (for the US club members only).

I watched the PBS program "Centenarian's Tell it Like it Is" the other day. What struck me was how much technology had changed in 100 + years. In the early 1900's only 8% of the households had phones; there were only 8000 cars and 144 miles of paved road; Other random facts are equally surprising (Las Vegas had a population of 30).

What will the next 50 years for me be like? And what will be my quote?

"The pessimists I've known have all died young."
— Philips L. Carret, age 101

Caaddywampus

So A.M.  mentioned at lunch (while sitting outside) the umbrella was caddywampus. WHAT? That was a new one on me. I thought it was whopperjawed. But Arthur was right - the precise definition of caddywampus is askew.
I remember the expressions from my Grandfather Wells (and even Dad comes out with them). They can never remember them until the moment of truth - the actual event. But some remain with me forever - without the moment needed.
"He looks like the north side of a horse headed south". "That's slipperier than a minnow's peter" The list goes on and on.
So check out your favorite Slang Site for the precise definitions.

Missing Adult

I was driving back to my office and there was the road sign announcing a missing adult in a silver Honda with the license plate number. I've already blogged about the baby-boomer birth rates and I wonder if this will be a trend - Alzheimer hitting the sweet spot of baby-boomers.

I'm only tangentially knowledgeable about the disease (after all Ronald Regan had it). But it's discomforting to even think about a "missing adult" - no different than the feeling of when your child came up missing.

I liked the time that over the intercom of the furniture store we heard - "Will the missing parents of Jenna Wisner please come to the front of the store"

We all come up missing sometime - let's pray that we are always found.

Just get to it

One of my pet peeves in books and movies (DVD's that is) are the "stuff" that precedes the story. In books - Praise quotes by readers, acknowledgments (by the author), foreword, introduction, preface - all before chapter one. I've never written a book and the temptation to write all the stuff at the beginning would be intense. I really doubt the author wrote these beginning items prior to the book - so obviously they are out of time sequence.

For DVD's it's alittle different - the previews of other movies, maybe a blu-ray commercial, then the rolling credits and title prior to the first scene. The previews and commercials make more sense in our intensely over advertised society.

And if that isn't enough - the endings for books can get onerous - conclusion, epilogue, appendix and acknowledgments (that's ok with me if put at the end),notes, permissions and the ending list goes on and on.

One thing I know for certain - disc jockeys never read those parts.

Pebble of a Problem

Someone I know (I am sworn to confidentiality) can take a "Pebble of a Problem" and create a "Desert of Despair".

To me it is all about putting the size of the problem in perspective - if it is a pebble, don't let it grow beyond that size and start problem solving immediately. Problem solving is a discipline and a learned skill. There are four easy steps:

(1) Understand the Problem (see my blog on "Seek first to Understand") - Can you state the problem in your own words - or write it down succinctly? What information do you need about the problem? Who would be helpful in the understanding of this problem?

(2) Devise a Plan - Look for a pattern; Make a table or diagram; Write down an equation; Work backward; Develop a matrix (my personal favorite) of facts; Break the plan into manageable steps and sub goals;

(3) Carry out the Plan - Implement the steps above or "plug into the equation" the variables. Check EACH STEP along the way. Record the data; keep an accurate record of your work.

(4) Look Back - Check the results in the original problem; Do a reasonableness test; Is there another method of finding the solution; If possible, determine other related or more general problems for which the techniques will work.

So drop the pebbles along the way. You will reach home without crossing a desert of despair.

Picture = 1000 Words

The adage that a picture is worth a thousand words seemed to reveal itself completely to me as I prepare for next Friday's Friday Morning Devotional. I chose the book "The Return of the Prodigal Son" by Henri Nouwin which is his spiritual journey written through his love of Rembrandt's depiction of the Parable in Luke 15.

Storytelling is extremely powerful and Rembrandt's last oil canvass (1669) collapses the 533 words into an intimate scene with warm red and golden yellow colors among the mysterious dark and light contrasts of setting for the "cast". Even a person, like me, with little appreciation for art, is drawn to this picture.

How challenging it is to take a story and collapse it's time, the players, the message and outcome into one "snapshot" or still. It's like picking one photograph to tell the entire story about your vacation experience. Or one frame of a video in place of the whole movie.

Laconic Storytelling - just create a picture.

Irrational Commitment

Egocentric empathy gaps between owners and buyers-  also known as the endowment effect is all about property rights and possession.  A person's willingness to pay should equal their willingness to accept compensation to be deprived of ownership. Unfortunately that doesn't seem to work with even rational people.   Simply stated the endowment effect is when you put a higher value on goods you own than the same objects you do not.

This is seen time and time again in the selling of real estate - what you are willing to accept for your (that's a big YOUR) house.  However economists (like me) believe in the logic of substitution and the beauty of indifference curves.
It is a balance sheet belief.

So is it irrational commitment?  When emotions are involved (take Love as an example) the balance sheet can be thrown out the door. 

"Can't buy me Love" ............

Frugal Fatigue

I liked the term "Frugal Fatigue" in the article announcing March retail sales on Thursday last week.  I think I was experiencing that last week as I shopped the isles of Sams Club - Frugal Friendly Frontier.  Sometimes the urge to buy overpowers the need - impulse kicks in and retail sales go up.

I think this behavior mirrors the emotional swings of investing in the stock market also.  How long can cash sit on the sideline earning nothing?  All the "talking heads" were predicting a bounce back down as the Dow hit the 11,000 resistance level but March returned a 5.9% increase on the S&P (and April already up 2.1%).  Cash Fatigue is building up even more.

So we buy something - anything to exercise our wallet.

Sub-Par

Context is everything. Today they mentioned how many golfers were sub-par at the Masters. So in that context the word denotes great scores - a score under par.

I remember the Covey course (from the book" 7 habits of Highly Effective People") the entire Accenture management team was required to take. Habit #5 (and the most important in my opinion) is - "Seek First to Understand - then to be Understood". The visual immediately that comes to mind is the story about two guys on the bench eating cookies (you'll have to read to book to get the whole story).

Seek first to Understand is all about context- what do you mean by Sub-Par? To me Sub-par means...... Clarifying with question, restatement and listening is the key skill set.

Sub-par --- Supar--- Super --- Supper - "I'm hungry" Listen carefully :)

Codes

As I prepared for SVP Cincinnati's decision on a new focus area, I stumbled on NCCS (National Center for Charitable Statistics) and the  NTEE-CC codes (developed in the '80s - these codes divides the universe of non profits into 26 major groups in 10 broad categories).  It was a statistician's dream - Giving with a code :)

Codes are our attempt to take large numbers of seemingly unique items and group them into something more understandable.  The allows us sort add together, compare and contrast - analysis/paralysis.

The 2010 census is now upon us - and each of us will be "codified".  Somehow we must fit inside the codes they have provided -  "none of the above" is not an option.  Susan has started her personal revolution around the code for "Race".  Personally I like her view - but as a statistician I'm conflicted - since I'm obsessed with codes.

Her preferred code for Race ---   HUMAN.

Should've , Could've, Would've

I should've, could've and would've done it if only .....   Words to be deleted from your vocabulary.  With the word "have"  they are all past tense expressing conditionality, contingency or personal opinion.  Either you are in angst over a bad decision or making an excuse for current circumstances.

The only positive thing in the use of the words is the possibility you are using them to improve your decisions and actions in the future. 
 
Putting the word "YOU" in front of  -- "should, could and would" is extremely dangerous.  Whether it is advice, or an order - it is never really received well or desired by the recipient. 

So get out the past -  I shall, can and will.

False Negative

False Negative is Type II error (also known as the error of excessive skepticism).  It is also known as the oversight error - believing the premise (based on observations) when in fact it is false.  Or in lawyer's terms ruling the defendant innocent when in fact he is guilty.

Last night I told the Trustees that "I was paid to be a skeptic on conversion dates".  Excessive skepticism is viewed as counter productive, anti progress, and pessimistic attitude.  There is a reason they use the term "Devils Advocate". 

There is no right answer on which is worse - False Positives or False Negatives (the cynic or the gullible). Both can be solved with infinite sample sizes in statistics.

It's like politics - you need emphasis on both "False" errors - Republicans and Democrats :)

Or maybe you are experiencing TYPE III error -  using the wrong null hypothesis (asking the wrong question).

Same

I have gone to the  --  SAME  -- Barber for 33 years -  Fausto Ferrari the Barber of Garfield Place.  In that 33 years we have spoken no more than 100 sentences.  Fausto a first generation Italian has a heavy accent but the picture of George Washington on the wall facing the chair shows his proud American citizenship and his business demonstrates the entrepreneurial DNA of the USA.
I enter the door - he says how are you (at least that's what I think he said).   I nod.  He says, SAME?  I say, SAME.  The rest is pure meditation.  I  close my eyes and listen to the sounds of the city.  Or during the winter, Fausto turns on the 1950's radio station and Frank Sinatra sings a tune. 
Walking in his shop is like walking into a barber shop of the 1940's. He started there July 7, 1957 and I think there is stiill a National Geographic on the magazine stand with that date.
The comfort  of  "SAME"  (I think the building has had a barbershop there for over 100 years) is a wonderful feeling.

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Cincinnati Enquirer  10/24/2004  
The Barber of Garfield Place

Fountain of Youth

This weekend (a beautiful set of Spring days) was consumed with renewing the fountain that is an integral part of our front courtyard.  My experiment with shutting down the the filter/pump over the winter, resulted in a very ugly environment of algae and slime (with fish casualties).  The lessons of experience.

Three plants survived and now the fish (with additions) will roam a crystal clear aqueous home. The fountain now in it's fourth year of operation has been a fun hobby for me and source of great pleasure -  maybe even FLOW :)

So the fountain yields happiness;  happiness can extend your life -  yes indeed a fountain of youth.

Falling on your Sword

When the arrogant leader falls on his sword the crowd roars and the arguments wage on -  we expect our leaders to be without sin. So when hypocrisy is discovered - we crucify vs forgive.   One side starts the justifying arguments,  the other "we told you so".  The the fact remains - everyone regardless of arrogance or humility will someday fall on their sword.  How you respond to your neighbor's wound is what will differentiate you.
It's a slippery slope to rank the fall or how big the sword is.  Some justify using the past saying - "At least it's not as bad as when ....."
Actually most falls on a sword are fatal --  that is a fall without forgiveness.  The tough thing is forgiving someone who offers no others forgiveness (a form of ultimate arrogance). 
Today marks the week of ultimate forgiveness - the Armor of Grace.

Socratic Listening

Listening - is it an art, skill, inherit talent or something else?  Engaged listening is even deeper and harder to do.  Because the human voice is slow, the listeners mind wanders - anticipates the next word, thought or prepares a volley in the tennis match of communication.

What happens when two "listeners" confront?   Sounds of Silence (by the way what is the sound of silence? - a song?)
The only way to get another listener to talk is with an interesting question - one that mandates something other than a yes or no.

At Accenture, we were trained heavily in the use of open ended questions in the interview queries with clients.  Add to that my favorite training from a East Coast firm (Communispond I think) called Socratic Selling. I was given all the tools to train myself in better more engaged listening - maybe even Socratic Listening.

The question is ...........   Tell me more about this term Socratic listening.