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The Influence of Teachers and Teaching

April 26, 2016

I moved over the summer, and it was as hard as moves are predicted to be. It took a lot of time and created its share of stress, but fortunately nothing broke and the new place is a lot nicer and very enjoyable. A friend told me that when you move, you lose something and you find something. Sure enough, a few things went missing, and who knows what happened to those boxes. But I also found a big envelop full of letters and correspondence that was sent to my old address at Dartmouth. Somehow it ended up on a shelf under a pile of papers and I never opened it. I looked inside and found some foreign correspondence, old issues of the Economist, and then a letter in a thick, elegant envelope. I opened it and found a wedding invitation. It came from one of my former students; she was in my class several years ago and also worked for me as a research assistant. I remember her vividly: a very petite Asian student who did not speak very much in class but who ranked at the top of the course. With my Italian mamma attitude, I felt protective of her; she looked so much younger for her age than the other students, and so fragile. But in fact, she had an iron will and when she was admitted to an excellent law school, she decided that the town where it was located was not ideal for a foreign student—the reasoning of a mature person who knows what she is looking for.  She had been put on a waiting list at some other schools and ultimately ended up at another Ivy League institution. And now she was inviting me to her wedding in California. I read the invitation several times, thinking of that petite student in the classroom.

As teachers, we tend to forget how much of a difference we can make for our students: we can motivate them to study more and harder, we can provide opportunities for them to ask a lot of questions, to challenge existing ideas, and we can push them to do more. The Committee on the Status of Women in the Economics Profession, also known as CSWEP, asked many famous economists how they chose their career. In many cases, the answer was that a teacher influenced them to choose economics or to go to graduate school or pursue an academic career.
I used to teach freshmen at Dartmouth, and I remember the faces of students in class, the mixture of curiosity and terror at taking their first economics course, which, on campus, had a reputation for being very difficult. Because of the work I had done on financial literacy, I knew that female students needed different arguments in order to find the course interesting and relevant.  And they needed encouragement to participate in class, ask questions, and volunteer their opinions. And I knew that technical terms—economics jargon—were off-putting for everybody, so I started the course simply and built both the “language” of economics and finance and its principles day by day. Truth be told, most of the students enrolled in economics courses because their parents told them to, so I had to prove to them that their parent were, in fact, right. (Do you see now what a tough job we have?)
When I talked to these students, many told me stories about their teachers, in some cases explaining that they had applied to highly selective colleges because their teachers had encouraged them to aim high. I heard that they loved math because their teachers made the course so good, and that they did well because their teachers cared about them. If I look back at each stage of my education, from elementary to high school to college and to graduate school, like my students, I can point to some teachers who had a profound influence on me and on who I am today. 
I am reminded of this lesson any time I start teaching a new class, any time I enter in the classroom where a new set of students are waiting. As a teacher, I have the good fortune of working with young people whose life of accomplishments has just begun.  I have a chance to influence their knowledge and, in turn, what they can do with it.
There are a few profound pleasures in life. One is receiving an invitation to the wedding of a former student. As the new academic year begins, I am reminded of the special job I have and what it means for students. For me, what I found during my move was a lot more important than what I lost.

Norway on Horns of a Fossil Fuel Dilemma

April 19, 2016

You gotta love the irony of the situation. Norway has been considering a change in the investment policy of its giant $800 billion national wealth fund by divesting all its holdings of fossil fuel companies to help stop climate change. Guess where the $800 billion came from? That’s right, from its North Sea oil.

They are not gonna divest however, as they think it would not be effective. They plan instead to “influence from inside” by working directly with bad companies. That’s a relief since the fund on average owns 1.3% of every developed public market equity and a sale of those assets would probably knock back Canada’s energy and coal mining companies yet more.

Mind, there is another solution to the Norwegians’ dilemma with their “ill-gotten wealth” that would relieve their collective conscience. Could they not just give the money away to poor African countries?

WaterFurnace Renewable Energy – All's well that ends well

April 11, 2016

WaterFurnace (TSX: WFI) is being acquired by a Swedish company in the same business, bringing to an end the four-year holding that I posted about in 2010 when I first bought shares in WFI. Though WFI’s price took a big jump up from recent $25 or so to about the $30.60 acquisition price, that has only made for an “ok” investment overall. As the Yahoo Finance chart shows, shortly after I bought it, WFI took a prolonged downward slide that it only recently has recovered. Compared to an market index ETF like iShares TSX Composite XIC, the ride has been a lot bumpier to get to pretty well the same place, though dividends are not included and that would put WFI ahead of XIC since its yield in 2010 was 3.5% while XIC’s would have been 1% or so lower – thus 5 years x 1% = 5% more return for WFI bumping it slightly ahead of XIC. Anyhow it’s a friendly acquisition so is almost sure to go ahead and thus is the end of the line for WFI.

Here are my takeaways from the experience:

  • Extreme patience is required and the only way to be able to exercise patience is to have some confidence in the on-going value of the company. The seemingly endless downward slide of WFI’s stock price from 2010 through 2011, 2012 and 2013 didn’t feel great. Stagnant actual company results didn’t help much. In early 2013 when I posted after the release of 2012 results, it looked as though the stock price could only be worth $20 max. Regular in-coming dividends – WFI even increased its dividend during the downward slide of stock price – also help greatly to exercise patience. You are getting something back out of the investment. Funnily enough, WFI’s recent business results haven’t been inspiring enough to think significantly higher stock prices are justified so I am more than happy to sell my shares at $30. As Yogi Berra said, “It’s never over till it’s over”.
  • You can still get sand-bagged by the unexpected no matter how good your due diligence. My MBA-style due diligence before purchase in 2010 was as good as I could make it, yet I still missed the one key factor that has been a severe drag on WFI’s business performance (in addition to housing starts), namely the huge drop in natural gas prices and relative loss of attractiveness of ground source heat pumps for heating/cooling as a result of fracking. I’m still not sure whether WFI management didn’t realize themselves the importance (incompetence), or just didn’t want to tell shareholders (untruthful), but they sure didn’t talk or write about it. On-going paranoia about what could go wrong seems to be a necessary attitude to maintain when investing in individual stocks.
  • A follow-on is that Socially-responsible environmentally-friendly companies are not necessarily the best-run. Managers missed the boat on natural gas prices and they have been increasing their pay much faster than performance would justify too.

Manipulating the Facebook News Feed

April 4, 2016
by Bill Sweet

On average, internet users spend more time staring at Facebook than any other website. For active users in the US, this amounts to about 40 minutes per day. That’s a lot.

Approximately 1.2 billion people use Facebook daily, of which about 204 million or so are active users in the US and Canada (out of a total of 349 million). Google may outpace Facebook in visits to the site, but the entire point of a search engine is to help you find what you’re looking for, which usually means routing you away from the search engine.

Because it commands so many eyeballs in the aggregate, the top of your Facebook news page is one of the most valuable pieces of real estate on the internet.

Like the Google search algorithm, the system that controls the Facebook news feed is shrouded in secrecy. The company says that it determines which stories to show based on your connections and activity. Advertisers are very interested in connecting and being active with you, and so there is a natural fit for someone who has merchandise and wants you to notice their products to connect with you on Facebook. Like Google, targeted advertising is how Facebook makes most of its income.

Like any system, the Facebook news feed can be manipulated to achieve a certain result. One way to counter this is to use a special link – instead of simply – after you’ve logged into the site:

That snippet at the end – “?sk=h_chr” lets Facebook know that you want your News feed sorted in chronological order, instead of sorted by the News feed algorithm. That gives Facebook less of an opportunity to sort your friends’ posts for you, and instead you’ll just get the recent stuff. I don’t have a ton of connections on Facebook – I use it solely for personal communication – so this is perfect for me. Getting this to work in the mobile application is a little trickier, but still possible (click the “More” button, or the horizontal lines, and look for “Most Recent” under “Favorites”).

Another way to have fun with the news feed is to trick it. While we don’t know for sure, based on observation, we assume that Facebook’s system is designed to give extra weight to posts that are 1) exciting, 2) personal, 3) involve major life events. In theory, putting words like “new baby,” “marriage,” or “new job” are going to be more likely to be noticed than “Going to the gym now.” To see this in action, check this post out. Or this one.

Advertisers have figured this out as well, and because so much money is at stake, someone was going to find a shortcut to getting their content promoted. Similar to the issues of click bait with Google, services labeled as “Like Farms” now exist to generate buzz around an advertiser’s products via their Facebook page. Because the news algorithm appears to be reinforcing (more attention results in more promotion), generating a rapid amount of “Likes” and hence traffic early is an inorganic but quick and dirty way to get noticed.

“With AuthenticLikes, we observed likes from more than 700 profiles within the first four hours of the second day of data collection,” say De Cristofaro and co. After that, there was not a single additional like.

The team say this is likely to be the result of automated bots operating a set of fake profiles. Just why Facebook is unable to prevent this kind of activity is not clear.

Organic vs. Farmed “Like” Growth

The quote above is from MIT’s Technology Review, which recently studied the phenomena. Another study from Cornell is coming soon.

Facebook itself is very aware of all of this, of course. In late August they implemented some policy changes to crack down on the more egregious click-baiting.

In conclusion, I don’t think that any of this is necessary bad or evil. Like radio and broadcast television before it, Facebook, Twitter, and Google all provide us with incredible services in communication and search capability without directly charging us anything, which is amazing when you think about it.

If you don’t want Facebook or other companies offering targeted advertising, you can always delete your account and not use the (free) service anymore. If that’s a bridge too far, don’t volunteer any information about yourself other than the bare minimum. When you spend 15 minutes telling Facebook which TV shows you like and what kind of car you drive, what do you think they do with that information?

– Bill

Thank You For a Great Tax Season

March 28, 2016
by Bill Sweet

Thank you very much – particularly our fantastic clients here at the firm – for an incredible tax season.

I wasn’t able to post much this year because we had 17% more clients this year than we did in 2014. We’re incredible grateful and humbled by the fact that we’ve been able to meet so many fantastic new people, and sincerely hope that we were able to make a tough time for all of us just a little bit better.

The final figures show that we filed 1,196 tax returns. In the aggregate we reported a combined $117,064,480 of adjusted gross income, and processed $3,793,784 of Federal tax refunds for our people. Thank you everyone for your tremendous support of our small firm. I can’t begin to explain how much it means to me personally and to our team.

– Bill

Families Affected by a House Fire in Tuxedo Need Your Help

March 20, 2016
by Bill Sweet

Two families are in need of assistance following a devastating house fire last night. Both households include veterans, in addition to two small children.  I don’t believe that anyone was hurt, which is fortunate, but the effect of losing your home is obviously catastrophic.

The Town of Tuxedo is organizing a drive – see details below – summary:

– Household goods can be donated at the American Legion Hall

– Gift cards can be left at the Tuxedo Police Department 24/7 (for personal hygiene, clothing)

Clothing is the immediate concern since both of these families lost everything they own.

Update on 04/20 from Shari Brooks at the Town:

A fund has been set up at See link below. Monetary donations can be made at the secure site for the families who lost their homes in the duel house fires this past weekend.

We are accepting house hold items at the American Legion Hall.  (16 Orange Turnpike, Southfields, NY  10975)  For large bulky items please call Town Hall to make drop off arrangements: 845-351-2265. Items such as microwaves, beds, cook ware, towels, sheets etc.…  are needed. We will organize and store these items in the basement for the families. When they are ready it will all be there for them. Any unused items will be donated to other families in need.

I am very proud of Tuxedo for how it supports those in our community who are in need, very recently with Hurricane Irene / Sandy. It is the best and most admirable aspect of the Tuxedo community.

Thank you for your support.

– Bill

UPDATE 05/01:

I spoke with Paul this week and everyone seems to be doing fine. No one was hurt in the fire, and that’s always the most important thing. The families are deciding what to do – to rebuild, or to move on – but all have been touched by the tremendous outpouring of support.

Thank you – everyone.

Short Selling – Superb "how to" from a pro

March 12, 2016

Worth reading, even if you have no intention of ever trying to be a short seller – Short Selling: Cleaning Up After Elephants by Guy Judkowski on Seeking Alpha. He describes in understandable, brief yet explicit detail how he did it successfully. It made me realize the exacting, relentless, painstaking effort involved.

The Most Common Age in the US is Far Younger Than You Think

March 4, 2016
by Bill Sweet

Just a really quick look this morning at what the US population distribution looks like at the moment (well, as of about a year ago):

I was surprised to learn that the most common age in the US isn’t in the baby boomer zone (50-65), but rather 22 year olds.

The effects of the that echo boom have yet to be realized, in my opinion, on the greater economy. While we certainly have an aging population (look at ages 0-3), we don’t have a lack of US citizens in their early 20s. This group is currently graduating from college, looking for jobs, and will likely shape the US economy with their purchasing power and choices over the next several decades.

– Bill

Empowering women

February 27, 2016

Today is International Women’s Day and I want to write a blog about a topic that has occupied a lot of my research in the past few years: gender differences in financial literacy. Starting from the very first paper I wrote on financial literacy, I found over and over that women were less likely to answer correctly to financial literacy questions. I did not focus on that finding until more recently, when I performed an international comparison of financial literacy. I found the same finding in as many as eight countries: women were less likely to answer correctly to the same financial literacy questions I had asked in the United States. And strikingly, in countries as different as Sweden, Italy, Japan, Russia, the Netherlands, New Zealand, and Germany, women answered in the same way to the financial literacy questions: they said they “did not know” the answer to the questions (the paper is posted on-line at:

I remember sitting in front of my computer and looking at the papers that became part of a special issue of the Journal of Pension Economics and Financeand comparing the tables across so many countries. It was so clear, so stunning, so evident; yet I had not seen when I considered the data from one country only. It took that comparison, which was done for a completely different set of reasons, to unveil that striking gender difference in financial literacy.

The finding can be interpreted in different ways and this is what my current research is exploring. First, women may simply be aware of their lack of knowledge and they are willing to admit it. This is consistent with some of my other data that show that women tend to give themselves low rating when assessing their financial knowledge. So, women know that “they do not know.” This may, in fact, be the first step to acquire or want to acquire knowledge. Second, women may have financial knowledge but are less confident in their knowledge and are less willing to guess or choose an answer when they are not sure it is the correct one. Some may view this attitude as a drawback, but I see it as a potential advantage. It takes gut to admit one does not know or does not know enough. Humility in the world of finance may give better results than being bold, assertive, and.. well wrong. In case you did not notice, we have experienced a lot of that in the past few years. Third, women may be less comfortable with the jargon that is used in finance. We assume that people know the technical financial terms, few bother to explain them, but most people do not have a clue about what inflation, real interest rates, and risk even mean, and women are willing to say “I do not know.”

What makes this result so important is that women may be the ideal target for financial education programs. Why attend such a program when one thinks he/she knows (according to my findings, only one third of the population has a very basic knowledge of financial literacy; believe me, that program is so much needed!). Many studies have found that women are not only more likely to attend financial education programs (in the program that I myself run, the large majority of participants were women), but women are also more likely to change their behavior after attending the program.
In summary, empowering women with the financial knowledge, the confidence, the terms that are used in finance could be a powerful tool; women may willing to use it. Happy International Women’s Day.

Book Review: Stocks for the Long Run (5th ed) by Jeremy Siegel

February 20, 2016

SfLR is a classic, a book that every self-directed investor should read. Primarily history, but with a good dose of explanation, and primarily about the USA, it’s the best overview of the equity side of investing one can find. It’s a book about stocks in the broad collective sense, not about individual stocks or analysis thereof. Anything you wanted to know about stocks (see the table of contents in the Amazon preview of SFLR) and were wanting to ask and get a succinct intuitive (non-academic, non-mathematical) answer, this is the book.

The mere fact the book is now in its 5th edition twenty years on from initial publication is testament to its enduring well-earned popularity. Author Siegel has not rested on reputation, the main update being an account of the 2008 financial crisis and its aftermath in the first 70 pages.

It’s hard to say these are criticisms, but here is what I would like to see expanded (I’ll gladly take another 100 pages despite the book being already almost a brick at 400 pages):

  • Central thesis past vs future? – The fact in the following quote accounts for the fame, and the title, of the book “… stocks, in contrast to bonds or bills, have never delivered to investors a negative real return over periods lasting 17 years or more” (going back to 1802 up to 2012 in the USA). OK, so how about the future? What are the chances this streak will continue and what are the factors to support the expectation? Is it just that the USA is lucky, as the-world-is-random folk believe? Siegel does address this crucial question to some degree – yes, since i) emerging markets country investors will buy up the assets of the boomer generation as they sell to finance retirement, ii) prosperity comes from productivity growth in the USA, which will continue. This is not totally convincing. How have stocks done around the world? The experience of other countries is not examined to any degree (Canada itself gets a couple of insignificant mentions), especially those where stock investors lost everything. Others like Elroy Dimson, Paul Marsh and Mike Staunton in Triumph of the Optimists and in their annual Credit Suisse Global Investment Returns Yearbooks have taken a much more extensive long term look. Siegel really considers only volatility risk since that is all that has transpired in the USA. It would be helpful for him to consider other long run equity risk, such as William Bernstein does in Deep Risk (which I discussed here). 
  • Investing strategies beyond cap-weight and fundamental weight? – As his own dissection of the Dow Jones Industrials and S&P 500 stock indices makes clear, cap-weight indices and the funds that implement them are strategies themselves, with significant inefficiencies, despite being miles better than actively managed mutual funds. There are better alternatives but he covers only one – fundamental weighting. Siegel describes small size, value and momentum factors but neglects low volatility and then misses the chance to tie all that together by describing the current state of the art indices/strategies being developed in places like the EDHEC Risk Institute in Smart Beta 2.0, such as maximum diversification, efficient maximum Sharpe, maximum decorrelation, minimum portfolio volatility, risk parity etc.
Nevertheless, it’s hard to knock Siegel too hard for the tremendously useful contribution this book makes to investing knowledge. 
There’s plenty of footnoting for further reading of sources. There are lots of charts and tables. The lengthy 17 page index is excellent. The writing is clear and jargon-free for the ordinary investor though it helps to have basic knowledge of investing. It’s a book one can return to again and again. It gave me plenty of blog post ideas.
Rating: 4.5 out of 5 stars.
Disclosure: The publisher provided me with a copy of the 5th edition for review.