The 140 page ad

kw: book reviews, advertisements, stock speculating, technical products

If you have a stock broker or money manager taking care of your investments, ask this question:

"If you have two clients that seem identical, in age, sex, life goals, income level and rick tolerance, do you make the same recommendations to both?"

Any answer but, "Of course!" is cause for suspicion. Here is why. Brokers tend to hedge their bets. Suppose in an extreme case the broker makes the same recommendation to every client, and is not just wrong, but expensively wrong. There go most of the clients! The business flounders. So of course, a smart agent will tailor investments to the characteristics of clients. But if a few clients are really very, very similar, they are still likely to get differing advice.

One of the oldest "advice" scams is an either-or tree. This works best if the advisor is very good at advertising, or can afford a top-notch advertising team. We'll analyze the action in exact powers of two for simplicity:

• Tout yourself as an expert advisor and offer to answer as many as three yes/no questions at no cost.
• The questions must be asked one at a time, perhaps by mail or e-mail. Answers will be delivered similarly.
• If you really do have an area of expertise, you may be able to give knowledgeable answers. Otherwise, flip a coin.
• Suppose you started with 1,024 people willing to ask you the first three questions. If you use coin flips (I know, your thumb will get tired), you will be right about half the time. If you are truly expert you may be right more than this, but we'll stick with half for now.
• For 128 folks, you've been right three times. For 128, you've been wrong three times. You'll certainly lose those latter 128.
• For the rest, you've been right twice for 448 and right only once for 448. You might lose all these as future, paying clients, but maybe not. Anyway, you have at least 128 people who are quite impressed with your "expertise". (Actual numbers will vary, for statistical reasons, but using exact math makes the analysis simpler.)
• Let's assume all the 128 happy clients are willing to start paying for answers. You introduce a sliding scale, with enough flexibility that you can charge more later on, pretty much at your "discretion". But of course what you tell them is that you charge more if the question needs further "research".
• Three more questions later, you have 16 clients for whom your score is perfect. You may have been able to keep some of the others as well, by arguing that a wrong answer here or there is to be expected.
• But those 16 are now your bread and butter. They will pay a lot more for questions requiring more "research" (it takes you an extra day or two to flip the coin), and be more tolerant of finding you wrong something like half the time!

Of course, if you are truly an expert, and are wrong substantially less than half the time, you'll do even better than someone relying on coin flips. The danger is believing too much in your own infallibility. Successful advisors must be quite dispassionate. That is why the ones who rake in the big bucks are total psychopaths such as Bernie Madoff, who added a pyramid scheme to his coin-flipping.

Now for the phrase that pays: Technical Analysis for stock picking is a way of hiding the coin flip amidst double-talk and jargon. The fancier the computer screen on which the "analysis" is presented, the more one can charge for the "advice".

I've been in and around the US stock market for more than 50 years. I've analyzed things nine ways from Sunday. Much technical analysis assumes a normal (Gaussian) distribution of daily moves. It is easy to plot a couple years' data for any stock you like, and see that large moves are more common than the Gaussian distribution would predict. Some have claimed that the actual distribution is a Cauchy (AKA Pareto) distribution, most notably Nick Taleb in The Black Swan. This distribution is favored by the "you can't pick it" crowd because, while it has a central tendency, it has no mean and no moments, and extra-large moves are possible at any time, that can wipe out days' worth of gains in a stroke. But the actual distribution is not quite so extreme.

For those with statistical expertise, this will be a meaningful explanation: The Cauchy distribution is a two-tailed analog of the Scale-Free distribution (log-log straight line) so beloved of chaos theorists. The real distribution is the complex square root of a Lognormal distribution. It has no name yet, and I haven't thought of a good one. Don't anybody name it after me! Anyway, it has fat tails, just not as fat as the Cauchy. For this reason, it just might be very slightly predictable, but less so than if market moves actually had a Gaussian distribution.

It isn't hard to do a sequence analysis. Download daily closing prices from your site of choice (I like finance.yahoo.com) into an Excel sheet. Be careful to pick a time frame of at least a year, in which the first and last closing prices are very nearly the same.

Calculate the daily moves (a simple Excel formula subtracting today from yesterday and so forth), then copy (paste values) them to the next column with a 1-day shift. Plot them in a scatter plot, or calculate a correlation coefficient. I just did this with the closing prices for McDonald's, 3/4/2013 to 3/4/2014. The chart is immediately below, and the correlation coefficient between the two columns is -0.055, or -5.5%. It requires correlations greater than 50% or less than -50% for statistical methods to make you any money. That's your simple proof that technical analysis cannot work!

The first and last closing prices were 95.07 and 95.02. However, during this time, the stock returned a 3.3% dividend. So, you could beat your head against the wall trying to make money on daily trades when a stock is going nowhere, or just hold it for a year and collect the dividend.

Into this arena I find a new book, Advanced Charting Techniques for High Probability Trading, by Joseph R. Hooper, Aaron R. Zalewski and Edwin L. Watanabe. They claim to have licked the barriers to successful technical trading, AKA timing the market. I read about a quarter into the book, and gradually realized that they were long on claims ("Many clients earn 20% or more monthly") but short on meaningful specifics.

Oh, there are plenty of specifics, but they all relate to using a software product to which you subscribe for $80/month (I got this from their web site). Now, these fellows have two sets of methods. For about a decade they have promoted and taught an option technique called "covered calls and LEAPS". They claim it earns high returns in both up and down markets. I reckon the trick is finding speculators who will buy the options on terms favorable to you. Perhaps Barnum was right, that "There is a sucker born every minute", and you just need to find these suckers.

This book adds loosely-described charting techniques that are supposed to enhance the method. I am not sure if using them means you pay more for your subscription. I couldn't find out without revealing more about myself than I was willing to. However, given my deep suspicion of all charting techniques, no matter how fancy their names, I can't give any credence. Let them say all they want about creating millionaires; how many of their clients are non-millionaires? or even non-gainers?

It became clear as I read that this was mainly a confidence-building exercise, and that the book is an advertisement for the products. Maybe this really is the cat's meow. I have yet to be convinced. But I suspect the authors make a lot more from their products than from using their own methods.

What malls won't do for money

kw: popular culture, advertisements, shopping malls

Ever since about Halloween, a TV ad has been running, an anti-Mall spot with a very catchy song and dance (to the tune of "Up on the House Top"), by TJ Maxx and a couple of other retailers. I began to wonder, was this taped in a mall, or did they build a mock-up? If they used a mall, I suspect they paid them well!

I also considered: although we do, as the lyrics state, "pay through the nose", do we really? It costs between half a dollar and a dollar per mile to drive a car (more for luxury models); I am frugal, and it costs me about $0.70 per mile. You need to drive a real beater and do your own maintenance to get the costs down in the $0.50/mile range. How do the extra miles and costs add up if you need to drive from store to store?

I live a mile from one mall, a rather modest one, and twelve miles from a real mega-mall. The collection of retailers and retail outlets in this area is pretty well concentrated in several shopping areas (what we used to call outdoor malls), that are spaced about two miles apart in any direction. So if I want to go to four places, I'll drive a total of two miles if I can find everything at the mall, and about ten miles to visit four separate places and return home. The eight mile difference costs only $5.60. If I can save $1.40 per purchase at the separate stores, then the extra trips were worth it.

But then, what is the value of my time? Rather than use my own compensation, which is a bit on the high side, I'll use a more average figure of $20 per hour. Store-to-store time includes driving and walking, and comes to ten minutes for a 2-mile trip. This adds up to 40-50 minutes for the four-store visit. Can I do my shopping in the mall, at four stores, and spend less than a total 50 minutes going store-to-store? Let's assume I can, and that the total is half, or about 25 minutes. The mall trip then saves $8.30 or so in "opportunity cost".

Add this to the $5.60, and we have about $14 that needs to be made up, or $3.50 per purchase. It is worth checking into your purchases beforehand, and deciding if you can save $3.50 per purchase at the separate stores. For some items, particularly clothing, it's a no-brainer. But both the separate stores and the mall stores complicate matters by having specials and sales.

I think, for a lot of people, the time saving is worth more than the dollar amount, and the convenience of the mall simply outweighs everything else.

The cost of self promotion

kw: observations, analysis, advertisements

The other day I noticed an airplane flying about with a banner. When it got closer I saw that it was advertising for a service company that we've used a few times. I remarked to my wife that if they could afford that, they must be charging too much. Let us just say that I've been less than enamored of their fee structure. I decided to look into it, and came away surprised.

I talked with the proprietor of an airplane-banner advertising company. The basic costs are:

• Composing and printing a banner is just under $2 per square foot, up to 3000 square feet. A typical banner about half the maximum size is thus close to $2,800.
• This area is fifty miles from the airport the company uses; the 100 mile round trip is $300 flat.
• Thereafter, the rate is $580 per hour, three hours minimum.

That adds up to about $4,850 for the banner and the initial flight, but after that each flight is $2,040. Costly enough, all right, but it does reach lots of eyeballs, at a rate much cheaper than TV ads, even on local stations.

The other main form this company uses is to have a logo and picture of the proprietor painted on all their panel vans. A painted or vinyl logo can be had for $200 for both sides, but the large photo image requires a special process that is upwards of $1,000. Using a vinyl "tarp" instead of painting the van directly costs about 2/3 that. I don't know how many panel vans they have, but they could get several of them (5-8) painted or tarped for the price of that first airplane flight.

What about ongoing advertising? Radio and newspapers are the more traditional modes. A single 30-second spot on radio stations in this region is more than $350, but $700 will get you two repetitions daily for a week. Weekly rates are lower if you do it all year ($700x52 = $36,400 but a yearly package is less than $20,000) . Surprisingly, just one column inch of newspaper advertising is $160 in the local paper and $680 in nearby Philadelphia. A quarter page comes at a big discount on the per-inch rate, coming in close to $3,000 locally or $12,000 in the bigger paper. That is for a single ad.

At rates like that, perhaps the airplane method makes sense. For $12,000, a fella can get four airplane-for-3-hours flights and have money left over. So I conclude that the pictures on the vans are probably the cheapest mode of ongoing advertising, and the airplane is quite competitive for short runs. Once a banner is made, you can fly it weekly all summer for $24,500.

The Mom I have is just fine, thanks

kw: observations, advertisements

In the past couple of days I've seen an ad in which some guy greets a "mom" enthusiastically, but the moment she puts veggies on his plate, he's out of there, and greets another, whom he abandons just as quickly for some other infraction. I suppose the sponsor's idea is to get across the idea of choices.

Am I the only one to find this ad vile and stupid?

Being green is easier than you think

kw: book reviews, nonfiction, ecology, environmentalism, advertisements

To be totally up front here, the book under review is mainly an extended advertisement for Shaklee products. Also, I happen to be a favorable witness, having used certain Shaklee products for forty years. I was a distributor at one time, but soon found it more lucrative to program computers—I am too introverted to be a good sales person.

I also found I didn't need to read right through. Green Goes With Everything: Simple Steps to a Healthier Life and a Cleaner Planet, by Sloan Barnett, is something of a reference book. Ms Barnett is a journalist, and the wife of a Shaklee executive, so she has gathered a ton of research into its chapters.

Her opening chapters are autobiographical. She was a casual Shaklee customer (in spite of the executive connection) until a child's asthma attack got her attention. When she found that much asthma is caused by, or triggered by chemicals in common household cleaning products, she basically went on a rampage. Wherever she could, she replaced products with Shaklee products, and found other alternatives for almost everything needed to run a modern home.

Most of the chapters are topical: houshold cleansers, body and baby products, food, water, air, energy…she covers it all. She closes with an appendix that is a 33-page resource guide, to just about everything Shaklee doesn't produce but is chemically and ecologically acceptable. This guide is kept updated at the GreenGoesWithEverything web site.

Forty years ago, Shaklee really had only one or two products that were worth the extra cost. The company has revamped the product line and streamlined manufacturing, so that many of the products are now either competitive or less costly on a per-use basis, and work as well or better than "the usual". I am re-evaluating my own choices of home products, a process I began early in the year, before I ran across this book. The hurdle now is not economical or practical, but a matter of being willing to change certain habits. Using a super-concentrated cleaning product requires being willing to mix it up rather than using it as it comes in the bottle. And, as the author states several times, being willing to forego "fragrances", which are often toxic or problematic: "Clean doesn't smell like lemons, it smells like nothing."

A useful reference book, if you don't mind its advertising nature.