This little piggy went home

It’s nice when the relevance of one’s blog posts is affirmed by, if not by actual events, at least by other writers’ works.  This week, the indispensable Ronald Bailey reviews Future Babble, a book that, in Bailey’s words, “explains why dart-throwing monkeys are better at predicting the future than most pundits”.   And pundits have an easier job than stock analysts: no one is going around trying to make pundits wrong, whereas if an analysts says that a stock price will go up tomorrow, and people believe him, they will rush to buy the stock today and tomorrow, the stock will down.

Then there’s the XKCD cartoon above that demonstrates why the Efficient Market Hypothesis doesn’t work quite so well for real estate.

In my last post, I asked what you should pay for an asset you’re considering buying. Now I would like to ask, what is an asset worth to its owner?  Formally, any asset is worth the risk-adjusted net-present value of its benefits to the owner. A long phrase, but let’s take it apart.

”Risk-adjusted” means taking into account not only the value of some benefit, but that chances of actually receiving that benefit. Think about the ultimate in risk, a lottery ticket. The odds of a Pick-7 lotto ticket hitting are 62,891,499; right now, the California SuperLotto has a payoff of $13.5 million, making one ticket worth 13.5 / 62.9 dollars, or about 21¢.  That’s pre-tax; after taxes, it’s worth maybe half that.  (Why do people pay a dollar for a ticket with a risk-adjusted value of barely a dime? Three reasons: 1. entertainment value, 2. people are stupid, and 3. an interesting phenomenon called “the nonlinearity of value” that I’ll talk about in a future post).

Every investment has some degree of risk.  If you keep cash, you run the risk the government will inflate away the value of that cash.  Even if you buy gold, somebody might very well steal your gold. There’s always risk.

Real-estate agents used to chirp, “They’re not making any more land!” implying that real estate was risk-free or nearly so.  I notice they don’t say that so much since the big real-estate bust.  There’s always risk.

“Net present value”  A terrible poet named Delmore Schwartz wrote, “Time is the fire in which we burn.”  Terrible but wholly correct in this case. Receiving a dollar a year from now, even if it’s absolutely guaranteed, is only worth 95¢ or less received today.  In 1626 Peter Minuit bought Manhattan island from the local Indians for a pile of trade goods worth 18 ounces of silver — about $700 at today’s silver prices.  A deal?  If he’d put that money in the bank at 5%, he’d have $98 billion dollars now; more than enough to buy all the land in today’s Manhattan.

And finally, “benefit to the owner”.  As mentioned above, one of the benefits to the owner of a lottery ticket is entertainment: for some period of time, you get to fantasize about what it would be like to win $13 million.  Most stocks aren’t nearly so entertaining.  They typically allow you to vote on the company’s board of directors, but to simplify things, let’s assume you aren’t Warren Buffett (if you are Warren Buffett, let me just say, “Hi, Warren!”) and so don’t care to vote — and to further simplify things, let’s only talk about stocks that don’t pay dividends.  If you own such a stock, the only benefit you receive is the right to resell the stock back into the same market you bought it from.

Which helps the stock market remain efficient.  Even assuming you could discover that the stock market had some irrational bias for or against some particular company or type of company (despite some fundamental weakness or strength in the business of that company), it wouldn’t help you, so long as that bias is reasonably stable.

Suppose you had a theory that the stock market undervalued companies with female CEOs.  Suppose you knew it for a fact.  How could you exploit that?  You could buy stock in Avon Products (CEO, Andrea Jung), but it wouldn’t help you, since the bias that kept the price down when you bought the stock would still be keeping the price when you went to sell it.

Consider the other end of the spectrum though, things that you entirely consume yourself, things like food and clothing.  You’re never going to resell them, any private theories about how much they are worth to you are more-or-less automatically correct.  If you think uncooked pinto beans taste better than filet mignon, you’re right!  To you.  Bon appetit.

Which brings me, finally, to my actual topic, of this post, of the previous post, and of several posts yet to come: real estate.

Real estate, in particular, real estate used as the owner’s residence, are midway between consumables on one side, where the only benefits are the benefits gained by consuming the asset and non-dividend-paying stock on the other, which is only worth what it can be sold for.   A house is yours. You can, if you want, drill holes in it until it collapses in a heap of rubble — but you have very powerful economic incentives not to.

Choosing a house to buy therefore becomes an interesting compromise: you want to buy a house that you like (so you get all the benefits of “consuming” it by residing in it), that other people don’t like today (so you can buy it at a good price), but that other people will like in future (so you can sell it at a good price).

The easy — or at least obvious — way to do this is to buy a house with defects you can correct, but that would scare off buyers less hardy than you. Remember that the real-estate market is much less liquid than the stock market and buyers and sellers typically much less sophisticated.

Real-estate agents are famous for spending effort and money to gussy up houses for sale — renting designer furniture, putting out fresh-cut flowers, even baking cookies in the kitchen to create the homey smell.  The flip side of that is when an agent doesn’t make those little touches, there will be less competition and a lower price.

I went to one open house a few weeks back where the owner was still residing.  He had declined to “stage” his unit (have it repainted and refurnished for the open house) and only cleaned it sketchily.  The place smelled of sweat and old food. The building was a duplex and there was a tenant renting the other unit; the tenant refused to allow his area to be shown except by appointment, so only about 2/3 of the building was even viewable.  To top it off, the owner had a small collection of Nazi memorabilia on display in the front parlor!

The average buyer would, I think, be somewhat dismayed by this state of affairs — which is exactly why you, the savvy home-buyer, should be attracted to it.  You aren’t going to be competing with all those average buyers.  The ultimate selling price will naturally be lower than the better-prepped house across the street.  When you do buy it, the owner will move out, taking his shabby furniture, his worn throw rugs, and his swastikas with him.  You can replace the worn carpet and the fetid toilet, evict the sullen tenant, buy good cabinetry, and resell the house at a tax-free profit.

And let’s revisit that last bit too.  If you buy stock in Google or Avon, and the stock gives you a $100 profit, you owe Uncle Sam at least $20 and your state will probably want a cut too.  If you buy a house and live in it, and while you’re living in it, it appreciates $100,000, in most case, that money is yours, tax free.  And if you borrow money to buy the house or to improve it, the interest on the loan is tax deductible.  Obviously, you want to check with your tax adviser, but we are talking about a serious advantage.

Actually, the Nazi-aficionado’s house was priced above market.  Even better.  It had been on sale for months (and I noticed, still available today), turning off buyers, discouraging agents, generally making the final price lower and lower.  Whoever eventually buys that house — braving the funky atmosphere, the recalcitrant renter, the unrealistic owner, the discouraged agent, the alarming decorations — whoever finally gets that place will get a bargain.


Tigers love pepper. They hate cinnamon.

I’ve been waiting for the Hangover sequel since, roughly, 10 minutes into my first viewing of the original back in 2009.  Hangover 1 was a terrific movie but it took me a long time to figure out why.

I mean, it was a very funny movie.  I, along with everyone else in the theater, laughed all the way through it.  I’ve re-watched it three or four times and laughed every time.  But I never really thought about what makes it so good until a friend relayed to me something that he’d heard the director Todd Phillips say in an interview: that they were trying to make an anti-Judd Aptow movie.

Don’t get me wrong.  I like Judd Aptow movies, the ones he directs and ones that were just sort of emitted from the Aptowsphere, like Superbad and Bridesmaids.  I even like the weak ones (I’m looking at you, misnamed Funny People).  I think what Phillips was complaining about — and what keeps Aptow’s movies from measuring up to Hangover — is that they pander.

There are scenes in every Aptow movie that just exist as fan-service for some particular demographic.  Like gross-out humor?  Here’s Steve Carrell pissing himself.  Here’s Maya Rudolf succumbing to diarrhea in the middle of a busy street.  Want some heart-warming, gushy stuff?  Here’s Romany Malco weeping over his fear of commitment; Leslie Mann and Eric Bana weeping over the rift in their marriage; Jonah Hill and Michael Cera lying side-by-side and chewing over their hetero-bromance.  Whatever you want from a movie, good old Judd will try his damnedest to make sure you get it.

Not Hangover.  None of the characters is likable: Phil is a thief, Doug is a nonentity, Stu is a wimp, and Alan — well, I don’t know a word for Alan, but whatever you call him, it isn’t “likable”.  Nor do they actually improve much over the course of the movie, thank God.  You like them a bit better and since they’re happier and less alienated, they are less negative, but they’re still awful, awful people.  In a Judd Aptow movie, Mike Tyson would have been cool and friendly, like all the celebrity walk-ons in Funny People.  Instead, he’s a self-involved dick who punches Stu’s lights out just for the hell of it.

The only Aptovian scene in the movie sticks out jaggedly.  Near the end, Stu says goodbye to Jade (Heather Graham) and they talk about their future and it’s supposed to be touching.  How much funnier would it have been if the hooker was homely and snaggle-toothed and was muddily indifferent to Stu’s affection?

Other than that, the movie was about what it was about: three near-strangers who bond while looking for the fourth.   Some really messed-up things happen to them, they find the guy, and they go home, clawed up, sun-poisoned, bloodied, and missing teeth.  And if you don’t like that, you can stay home and whack off to re-runs of Forgetting Sarah Marshall on HBO.

I have awaited Hangover: Part II with something like dread.   It really could be awful.  Sucker Punch awful.  Phantom Menace awful.  I have been assiduously avoiding any sort of reviews or word-of-mouth about the movie, literally at one point covering my ears when co-workers were discussing the movie’s buzz and chanting “La-la-la-la.”  I want my reaction to be pristine.  The curtain goes up in three hours.

Please, guys, don’t mess this up.  Please, nobody “grow” or “learn”.  Don’t have a heart-warming moment.  Don’t stop the movie so someone can cry or vomit.  Don’t be Judd Aptow.

“You have the right to remain silent”

“What you lack is the capacity.”

Like almost all well-informed Americans, I get most of my information about the US legal systems from reruns of Law & Order.  If you watch that show enough — and I’ve seen all 456 episodes at least twice — you start to notice, most people on the show who go to jail only go there because they make the mistake of trusting Jerry Orbach’s hangdog face and answering his questions.

It isn’t like there’s a six-year-old child anywhere in American who can’t recite the Miranda warning by heart (the wisecrack from the top of this post comes from that cerebral legal drama Shrek 2).  Everyone can say it but no one, at least on TV, seems to remember it.

There are plenty of videos on the web — from  ACLU’s informative, if mawkish, video “Flex Your Right” to Chris Rock’s even more informative “How not to get your ass kicked by the police!” — warn you again and again, keep your mouth shut.

So I decided to just keep my mouth shut.  If any representative of law enforcement asks me a question, I’ll simply say nothing.

And that’s what I have been doing.  In upcoming posts, I will record my adventures so far.

Be Positive

A friend of mine was having a business dinner with representatives of a big South Korean firm and they asked him about his blood type.

He thought this was a very peculiar question — and in the US, it is a peculiar question.  Outside of a hospital or a blood bank, who cares what your blood type is.  I bet the majority of Americans don’t even know their own types.  (I’m B+, which I only remember because it struck me as good advice.)

I asked my wife, who’s Korean.  Her reaction was (summarized) “Different cultures are different — in the US, asking your blood type is a personal question, whereas asking where you were born is just polite conversation; in Korea, it’s the other way around.”

I had to laugh.  My friend wasn’t offended at being asked about his blood type, he didn’t regard the question as intrusive, just as pointless.

Turns out, Koreans (with the Japanese and Taiwanese) have an abiding faith that a person’s blood type gives insight into his personality.  The belief is so pervasive that prestigious Yonsei University released a study purporting to quantify the effect exactly.  Turns out, we B-blood types are “illogical, unstable, and lack leadership” — but you already knew that about me.

What I find interesting is this belief isn’t particularly old.  It first arrived in Japan in 1927, piggybacking on so-called “scientific racism”, a loose group of complex and contradictory theories about how certain kinds of people, while genetically inferior, somehow manage to run the world.

The theatrical poster for the 2005 Korean rom-com B-Type Boyfriend

When scientific racism not surprisingly fell out of favor after World War II, the blood theory went with it, but for some reason had a resurgence in the 1970s.  Now, well-educated Asians have no particular qualms about discussing “typical” behaviors. [My indispensable wife points out there is even a Korean movie called B형 남자친구B-Type Boyfriend, about a conservative A-type girl and… well, you can guess the rest.]

Why blood type, of all things?  I blame it mostly on the availability fallacy.  We want, crave, insight into our own personality and the personalities of the people we depend on; and the blood-type is there.  Like birth-day, birth-year, and birth-month, it’s an unalterable, and apparently random, personal characteristic, so it must mean something.

Plus, unlike zodiac signs, determining your blood-type is both mysterious — what could be more primal than pricking your finger and stealing a tiny drop of blood? If it isn’t a scene from classical mythology, it should be — and simultaneously scientific — there are probably teams of lab-coated nerds laboring over beakers and Bunsen burners to scrutinize that drop of blood.

What I’m looking for is a replacement for blood type.  Something permanent and unchosen and most important, as difficult to determine as blood type.  We’ll set up a business offering tests.  “Your Personality Revealed!  Only $129.99!”

We’re gonna be rich.

The newest scourge: child-abusing clowns

Linda Beaudoin is a woman on a mission.  After Randy Miller, a 40-year-old professional party clown in the small town of Napanee, Ontario, pleaded guilty to child-pornography charges, Ms Beaudoin felt she had to take action.  According to the Toronto Star:

Beaudoin is spearheading a campaign for legislation that will make it mandatory for anyone working as a children’s entertainer — Santa, clown or Easter bunny — to be given a criminal-background check and be required to have a licence to make sure he or she is safe to work with children.

The Star piece is headlined, “Take child abuse seriously and license clowns, activist urges.”

I’m sorry, are we not taking child abuse seriously?  Are the police ignoring the problem?  Are offenders given a slap on the wrist?

No, I didn’t think so.  Nor is the specific issue, pedophile clowns, a real problem.  Miller wasn’t accused of harming any child, let alone one he was hired to entertain, nor was Daniel Gyselinck, another kiddie-porn devotee that Beaudoin likes to bring up.  The Star’s own contribution to discussion, John Wayne Gacy, famous children’s clown and serial killer, didn’t kill at the parties: he picked up drifters, runaway, hitchhikers, people who couldn’t be traced to him.

And it isn’t as if a child’s birthday party is ideal cruising ground for your lonely pedo.  Sure there are lots of children there, but there are also lots of parents and lots of video-cameras, and not much one-on-one time; the clown arrives, makes a few unrecognizable balloon animals, leads a sing-along, and bang, he’s outathere.

Finally, if there were a real problem, licensure wouldn’t solve it.  Miller, like Gyselinck and Gacy,  lacked a criminal record.  They all could have passed any background check; there was nothing in their backgrounds (Gacy had served time for a sex offense, but it had been expunged).  If anything, a license would give parents a false sense of security.  “Oh, we can leave little Johnny alone with Molest-o the Clown, he’s licensed. What could go wrong?”

I don’t want to be too hard on Ms Beaudoin.  She is obviously well intentioned; she was molested herself (by a family member, not a clown) and she wants to help save other children from her torment.  Still, what she’s doing can only be described as stupid.  It’s a futile and expensive attempt to solve a non-problem.

She does make one good point: “Exotic dancers need a permit; so do massage therapists. So why not children’s entertainers?”  Yes, lame and unconvincing though the case for licensing children’s clowns, mall Santas, Easter Bunnies, and so on is, the case for licensing the semi-skilled providers of similar services to adults is weaker still.

For one thing, if a dancer or masseuse decides to have sex with one of the customers, well, nobody gets so upset.

A ballot initiative in San Francisco opposing gay marriage.

Well, actually not but in principle.

The argument that same-sex marriage is unconstitutional is pretty simple.  The 14th Amendment to the Constitution reads in relevant part, “No State shall […] deny to any person within its jurisdiction the equal protection of the laws.” Allowing straight people to marry, while forbidding gays, violates that guarantee of equal protection.

The counter-argument sounds like a joke.  Gays are allowed to marry!  Of course, they can, they just have to marry members of the opposite sex, just as straight people have to.

San Franciscans, almost universally, reject that argument.   When Judge Vaughn Walker “overturned” Proposition 8, which had formally defined marriage in California as requiring one man and one woman, there was literally dancing in the street.

But now a very similar issue will be voted on in November: will a particular practice be forbidden equally to those who wish to practice it and those who don’t.  The practice in question is circumcision.

The proponents of the initiative like to call circumcision “MGM”, for male genital mutilation, which I’m sure makes the executives at Metro-Goldwyn-Mayer absolutely livid, but it serves a purpose.

The idea, of course, is not to upset the nice people who brought you Gone With The Wind and Hot Tub Time Machine, but rather to cast male circumcision as somehow equivalent to FGM, female genital mutilation, but think about it.  In a typical FGM, the girl, aged eight or 10, is held down while her clitoris and chunks of her labia menora are hacked off with an unsterilized piece of broken glass, and then the vaginal aperture is sewn shut.  A few years later (assuming the victim even survives the process), on their wedding night, her husband is supposed is supposed to tear open the scarred-over vulva as if it were a wedding present from David Cronenberg and have intercourse with the bleeding wound.  If the producers of those Saw movies made S&M porn, it might be something like this.

The goal, beyond sheer sadism, is to make sure that a woman who was subjected to such treatment will be reluctant to engage in sex, even with her husband, and therefore be unlikely to commit adultery — and I bet it works.  Apparently, the notion of just bringing home flowers once in a while never occurred to some people.

Male circumcision by contrast is the safe removal of a tiny bit of flesh and having it done in no way negatively affects the patient’s health or sex life.

The “Intactivists”, as they like to call themselves, have no real arguments.  A circumcised male is at least as well off as an uncut one; better in some sense, because the foreskin can trap dirt and contaminant if not kept scrupulously clean.  The partner of a circumcised male is much better off; she is much less likely to contract horrifying diseases like AIDS and cervical cancer.

The fact that the “Intactivists” have trouble distinguishing between FGM and circumcision shows their real motivation: circumcision squicks them out.  For whatever reason, the idea just makes them shudder with revulsion.  I guess it isn’t any huge mystery: imagine a scalpel hover right around your reproductive bits and you too might be thinking, “Hang on, let’s talk about this first.”

To an observant Jew or Muslim, there’s nothing to talk about.  God commands them to do it and when He talks, you listen.  Most of the rest of us, when somebody thinks he’s hearing from God, tend to hang back and let that guy go to Heaven or Hell his own way.  Sure, if someone (having heard from God or for some other reason) is up in the clock tower with a rifle, we’ll take action, but until and unless something like that happens, normal Americans say, live and let live.

The “Intactivists” don’t feel that way.  Their squick factor, they think, gives them the right to trample over the liberties of others.

Well, that’s just what the anti-gay-marriage people were thinking.