The summer may be gone before the traditional summer lull arrives. We got a hint of it on Friday, when the volume during the rally was the lightest in months. Don’t just leave the markets unsupervised!
This week’s calendar is quite busy.
We have reports on:
- July Existing Home Sales on Monday
- August Consumer Confidence and July New Home Sales on Tuesday
- July Durable Goods on Wednesday
- Q2 GDP on Thursday
- July Personal Income, July Consumption, August Chicago PMI and August Michigan Sentiment, all on Friday
The major indexes have posted slight declines for the week. The Dow Jones Industrials has closed on Friday at 11,628, or -31.84 points for the week, a -0.27% decline. Nasdaq has closed at 2,414.71, or -37.81 points, a –1.54% decline and S&P 500 closed at 1,292.20, or -6 points, a -0.46% decline.The sectors finishing in black for the week are Oil & Gas (up 4.96%), Basic Materials (up 3.03%) and Utilities (up 2.03%). The rest of the sectors finished lower, with Financials posting the greatest loss, of -2.85%.
Shares of Freddie Mac and Fannie Mae tumbled on growing fears that the Treasury Department will have to bail out the mortgage giants, wiping out existing shareholders. Moody’s cut ratings on the firms’ preferred shares. Freddie fell 52% for the week, Fannie 37%.
Lehman has become a buyout target, after Korea Development Bank reported that would like to make an investment in the ailing U.S. investment bank. Other suitors may follow, prompting upgrades for Lehman. However, the shares fell 11% for the week.
The presidential race gets hotter, as McCain closed a once-sizable gap in the polls or even led, especially in key swing states. Read more about both candidates’ policies in the attached Barrons article.
The economic data is still weak. Housing starts dived in July to a 17-year low and producer prices spiked. Oil prices have reversed since them.
The CEO’s are gloomy on economy, with about 90% of top executives describing the U.S. economic conditions as fair or poor. The percentage of pessimistic CEO’s was only 16% a year ago.
Saturday, August 30, 2008
Sunday, August 17, 2008
Weekly Recap - August 17, 2008
Crude oil slipped again to reach its lowest level in nearly four months, and the dollar rallied for the fifth straight week to extend its surge against the euro to 9%. After failing to about 20%, the percentage of stocks climbing above their 200-day moving average remains near a benign – and hardly overbought – 35%. These merely support “the notion that the recovery off the July 15 lows has been much more a sector-rotation affair than the beginning of a broad, sustained advance,” says Miller Tabak’s chief technical market analyst, Philip Roth.
The Dow Jones Industrial Average ended the week down 74, or 0.6%, to 11,600, and is 17.7% off its October peak. The Standard & Poor’s 500 barely eked out its fourth gain in five weeks and added 2, or 0.1%, to 1298. The Nasdaq Composite Index strung together its fifth weekly gain and rose 38, or 1.6%, to 2453. It has risen 9.5% in five weeks – the longest weekly streak since last October. The Russell 2000 climbed for a sixth straight week and added 19, or 2.6%, to 753. It has rallied 13.2% during this stretch, its first six-week streak since late 2005.
Commodities Update: Speculators led the rush to sell commodities, spurred by a surging dollar and dimming economic prospects. Gold fell $72.70, or 8%. Silver tumbled 16% to a 9-month low. Oil fell $1.43 to $113.77 a barrel. By Friday, the dollar had appreciated for 11 straight days against the euro, and it has never strung together a 12-day run. The euro fell 3.28 cents for the week to $1.4688, its lowest since late February. The dollar’s years-long decline had lured many speculators to buy oil, metals and other commodities.
Global Economy Cooling: As expected, Japan and the euro zone said their economies shrank in Q2 amid sluggish exports and weak domestic demand. Meanwhile, there were cooling signs in red-hot China, including industrial output, auto sales and oil imports. The reports helped push a big dollar rally and commodities sell-off.
Retailers Rise On Results: Wal-Mart and Urban Outfitters both beat Q2 views for higher profits, with the discount giant offering value on staple goods and the apparel chain staying fashionable. J.C. Penney’s and Kohl’s earnings fell, but shares continued to rise off lows, as lower oil prices fueled spending hopes. Also, overall retail sales fell 0.1% in July, up 0.4% ex autos.
Solar Firms Shine On News: Chinese solar wafer firm LDK surged 28% for the week after blowout Q2 results and a solid outlook. Photovoltaic cell firm JA climbed 9%, helped by its Q2 results. SunPower shot up 18% Friday on a big contract from utility PG&E.
The Dow Jones Industrial Average ended the week down 74, or 0.6%, to 11,600, and is 17.7% off its October peak. The Standard & Poor’s 500 barely eked out its fourth gain in five weeks and added 2, or 0.1%, to 1298. The Nasdaq Composite Index strung together its fifth weekly gain and rose 38, or 1.6%, to 2453. It has risen 9.5% in five weeks – the longest weekly streak since last October. The Russell 2000 climbed for a sixth straight week and added 19, or 2.6%, to 753. It has rallied 13.2% during this stretch, its first six-week streak since late 2005.
Commodities Update: Speculators led the rush to sell commodities, spurred by a surging dollar and dimming economic prospects. Gold fell $72.70, or 8%. Silver tumbled 16% to a 9-month low. Oil fell $1.43 to $113.77 a barrel. By Friday, the dollar had appreciated for 11 straight days against the euro, and it has never strung together a 12-day run. The euro fell 3.28 cents for the week to $1.4688, its lowest since late February. The dollar’s years-long decline had lured many speculators to buy oil, metals and other commodities.
Global Economy Cooling: As expected, Japan and the euro zone said their economies shrank in Q2 amid sluggish exports and weak domestic demand. Meanwhile, there were cooling signs in red-hot China, including industrial output, auto sales and oil imports. The reports helped push a big dollar rally and commodities sell-off.
Retailers Rise On Results: Wal-Mart and Urban Outfitters both beat Q2 views for higher profits, with the discount giant offering value on staple goods and the apparel chain staying fashionable. J.C. Penney’s and Kohl’s earnings fell, but shares continued to rise off lows, as lower oil prices fueled spending hopes. Also, overall retail sales fell 0.1% in July, up 0.4% ex autos.
Solar Firms Shine On News: Chinese solar wafer firm LDK surged 28% for the week after blowout Q2 results and a solid outlook. Photovoltaic cell firm JA climbed 9%, helped by its Q2 results. SunPower shot up 18% Friday on a big contract from utility PG&E.
Monday, August 11, 2008
Update to the 2008 Outlook - Household / Credit Card
The consumer is getting really tired. Its piggy bank - the homeowner's equity - is empty, its credit cards are (almost) maxed out, and with the gasoline prices and food prices getting higher, the question is how long until we start seeing personal bankruptcies on the rise, along with the continuous string of foreclosures.
According to a report by Moody's, household credit quality has never been worse. Deliquencies and defaults are at or near record highs and rising accros all household liabilities. Household liabilities that are in deliquency and default totaled $775 billion at the end of June, according to data from Equifax. This is equal to 7.5% of all liabilities, and compared to 3% from just two years ago, is a huge leap.
Credit Cards
Deliquencies and defaults are not at record highs, but they too are rising quickly. So far the growth in borrowing keeps the deliquency rates low. Credit card receivables are rising at close to double-digit rate as homeowners, unable to borrow from their own home equity, are turning back to credit cards for cash. The states with the highest increase in credit card receivables are Nevada, with 30%, Florida, with 20% and California with 15%. The new wave of credit card deliquencies will keep us awake well into 2009.
According to a report by Moody's, household credit quality has never been worse. Deliquencies and defaults are at or near record highs and rising accros all household liabilities. Household liabilities that are in deliquency and default totaled $775 billion at the end of June, according to data from Equifax. This is equal to 7.5% of all liabilities, and compared to 3% from just two years ago, is a huge leap.
Credit Cards
Deliquencies and defaults are not at record highs, but they too are rising quickly. So far the growth in borrowing keeps the deliquency rates low. Credit card receivables are rising at close to double-digit rate as homeowners, unable to borrow from their own home equity, are turning back to credit cards for cash. The states with the highest increase in credit card receivables are Nevada, with 30%, Florida, with 20% and California with 15%. The new wave of credit card deliquencies will keep us awake well into 2009.
The Week That Was - August 9, 2008
Nice week, ey? Just about everything that was supposed to go right did:
• the dollar had its biggest one-day gain in six years against the euro and is up for the fourth straight week
• crude oil is at $115 a barrel, its lowest since May 1
• the Fed kept the interest rate at an unthreatening 2%
• pending home sales got a 5.3% bounce, sheepishly saying that the housing market slide has slowed down a bit
Don’t get your hopes up too soon. The economy is still in decline: we’ve had highest unemployment rate in six years, and retailers’ outlook from Wal-Mart and Whole Foods show the Americans tightening their belts across all income spectrum.
• the dollar had its biggest one-day gain in six years against the euro and is up for the fourth straight week
• crude oil is at $115 a barrel, its lowest since May 1
• the Fed kept the interest rate at an unthreatening 2%
• pending home sales got a 5.3% bounce, sheepishly saying that the housing market slide has slowed down a bit
Don’t get your hopes up too soon. The economy is still in decline: we’ve had highest unemployment rate in six years, and retailers’ outlook from Wal-Mart and Whole Foods show the Americans tightening their belts across all income spectrum.
Tuesday, August 5, 2008
Lasting Contribution
Use Recognition
You can recognize things that you can’t recall. For example, one Easter morning in Kennesaw, Georgia the water pump on my old car gave out. While I was waiting in the auto repair shop a man came in and said, “I stayed in a hotel last night, but I can’t remember the name. It had a big yellow sign with red letters.” The repair guys gave him a blank stare so I said, “Look in the phone book.” Speaking slowly and louder, he repeated, “I can’t remember the name.” I said, “Recognition is stronger than recall.” He looked in the phone book, looked surprised, thanked me, and went to his hotel.
Mix It Up
When studying a variety of subjects or working on a variety of projects, it is more difficult to do similar things right after each other than dissimilar things. Huh? For example, don’t study English then your foreign language then math then science. Instead, study English, then math, then the foreign language, then science. Don’t work on a report, then a presentation, then the budget, then taxes. Reorganize them so that the sequence goes: words, numbers, words, numbers so that you maximize the differences between topics each time you move to the next one.
I often organize my work into a stack such that I counterbalance words and numbers, computer and paper, reading and phone. Then I set a countdown timer for ten minutes and work my way through the stack, forcing myself to spend at least at least ten minutes working on the unpleasant tasks. Importantly, the time doesn’t have an alarm so that if I am enjoying the work, I am not distracted when time runs out and can keep working.
Appreciate Your Fallibility
Notice how often people distrust their memories, but not their judgment. Psychologists have developed thousands of experiments that demonstrate just how poor we are at making judgments, judgments of any kind – moral, business, even perceptual. You can get people to misjudge the length of a one-inch line by as much as six inches if other people in the room say the line is longer.
So? So several things. First, keep track of your judgments so you can determine the things you are good at judging and the things you aren’t. Second, when you make a decision include ways to get feedback to determine how well the decision worked out. Third, decide an issue early. Then give your decision a time to rest and approach the issue from another angle to see if you come to the same conclusion. Forth, know that you could be wrong and be open to information that will show your fallibility. Although it is not fun to be wrong, it is much worse to persist in being wrong.
Finally, appreciating your fallibility is an important way to cultivate your judgment. And a cultivated judgment is a rare and precious thing indeed.
Watch Your Metaphors
Make yourself aware of underlying metaphors in your communication. Metaphors can be very useful when you use them for elaboration of a topic. For example, we often speak about verbal arguments in terms of war metaphors. (Your claims are indefensible. He attacked every weak point in my argument. He shot down all of my arguments. If you use that strategy, he’ll wipe you out.) Metaphors structure much of our thinking and communication. But the metaphors we use can also limit us in subtle ways. If you always think of arguments in terms of war, you may miss out on the benefits of thinking of the situation differently, perhaps in terms of a game, or a dance.
You can also turn this metaphor-speak to your advantage. When trying to join a new group you can use the same metaphors they use to better “speak their language.”
Test, Retest
People often study as subject until they can get 100% right on a test of their understanding of the subject. While this is a sensible approach, it turns out that about 10% of the correct answers is composed of guesswork, short-term memory, and information not fully learned. The best approach is to study until you get 100%. Then wait a day or two and test again. The second test is a much better measure of your grasp of the material.
Testing is important in another important way, in the sense of getting feedback. This can be as simple as pulling on the door you just locked to make sure it is truly locked to far larger issues. For example, Peter Drucker says that quality isn’t what you put into a thing. Quality is what somebody else gets out of it. Therefore, you can’t answer the question of whether your service is any good. Only your customers can. You don’t get to say whether you are a good leader. Your employees answer that.
Even more generally, good intentions alone are not enough. Get feedback to determine whether you are getting the right results.
Build a Mistake Hierarchy
Magicians provide an excellent example of a ‘mistake hierarchy.’ A good card magician knows that many tricks depend on luck and that luck is a fickle friend. So, you tell the audience you’re going to do a trick. Without telling them what kind of trick, you go for the one-in-a-thousand effect, attempting the most difficult one first. It almost never works, of course, so you glide into a second try, for tricks that work one-in-a-hundred times. When that fails, as it almost always does, slide into the third-level trick, which only works about one time in ten. If all else fails you go for the failsafe effect, which won’t wow the crowd out of their socks, but at least it’s a trick that works.
It is common for people to wish for something big: “I’ll win the lottery. If that doesn’t work, I’ll get promoted at work. If that doesn’t work, I’ll go back to school.” The problem with this approach is that the different plans are not aligned. Your plans should be more like a staged defense: If they breach the wall, we’ll fall back to the keep.
Go for something big and have a backup plan right behind it in case it fails and one behind that and one behind that…
Talk to Yourself
Talking to yourself has several benefits. First, it forces you to process information in a different way. Perhaps you have a picture in your head of what you mean; putting it into words can draw your attention to details that you otherwise might overlook.
Second, talking to yourself helps you to remember things. A simple, “I’m putting the keys on the table near the door,” can help you remember where your keys are. I recently found myself in one city with an airplane ticket home from another city. I found a friendly airline agent who helped me change tickets at not cost. While I was waiting I said to myself, “Her surname is So and So, but she doesn’t look like one. And her first name is the same as that woman’s.” The next day when I was to leave the airline said they wouldn’t honor my ticket, since it was from another city. I explained that Ms. So and So said… It was clear that if I had just said, “Some agent said…” that they wouldn’t have honored the ticket, but because I new the agent’s name, which I had memorized by accident, they honored the ticket.
Third, research on problem solving shows that if you talk out loud when working on a problem, particularly a complex problem, then you solve the problem more quickly. Japanese math classrooms, for example, are very noisy. All of the kids talk out loud while working. In comparison with their American counterparts, these kids score on average 25% higher.
If you can’t remember, try it doing it anyway
You have probably had the experience of not being able to tell somebody a phone number until you dialed it. Or perhaps you have given poor directions to a place you can easily drive to. This happens because we are able to remember procedures and tasks better than specific step-by-step information. The other side of the coin is that you shouldn’t think somebody doesn’t know how to do something, just because she can’t tell you how to do it. For example, a colleague might not be able to explain to you how to do something on the computer. If you have reason to believe that she knows procedurally, you might ask her to show you how she does it.
This explaining-doing gap has large implications in the workplace and in schools. Too often we don’t look at what people can actually do. Instead, we listen to their talk about the subject. I’ve seen tests in schools that favor those who don’t actually know how to do a thing, but who can talk their way through it and I have seen mechanics tests that ask for the words about how to repair cars, but don’t measure actual car repair. If you are assessing others, look at what they can do. If you are being assessed, show people what you can do.
Use Stealth Health
The principle is simple enough: Eat a variety of healthy foods, eat less junk, and exercise more. The question isn’t the principle. The question is How? I use Weber’s Law, which states that you can’t detect a difference in stimuli that is less than 10%. Have somebody lift a 50 and a 51 pound weight and they will have a hard time telling them apart. I use something more like a 1% difference, but I do so with wicked persistence. I begin by eating one, just one, more leaf of lettuce and one, and only one, less spoonful of ice cream. I take just one flight of stairs. When I have grown completely accustomed to this level of change, then I take the next baby step. When if I go nuts and eat a pint of chocolate chip? These things happen, but I know the difference between a blip and a trend. The pint of chocolate chip is a blip. The general trend is toward greater health. This approach has an added benefit in that I haven’t told everybody I’m on a health kick so when they see me down the pint of chocolate chip, I don’t feel embarrassed. I say to myself, tomorrow is another day and I’ll get back on track.
Learn Key Concepts
Efficiency: Getting things done right.
Effectiveness: Getting the right things done.
Capital intensive: Requiring lots of money to accomplish.
Labor intensive: Requiring lots of work to accomplish.
Quality: Not what you put into a thing; what somebody else gets out of it.
Emergency: A time to break the rules, as when you speed to get somebody to the hospital before he dies.
Sunk cost: Money or effort spent. It is to be ignored so that you don’t risk sending good money after bad. Instead focus on opportunity cost.
Opportunity cost: The next best thing you could have done with your time or money. That which you gave up by choosing what you chose.
Marginal analysis: How a small change in one thing can have a large effect in another, as when the difference between winning and losing is only a 0.001 seconds and the difference in payout is $100,000.
Intelligence: Learning from your mistakes.
Wisdom: Learning from the mistakes of others.
Use Your Attitude to Your Advantage
• Believe that you can. When confronted with a seemingly nasty problem or an apparently complex mathematical formula, people often give up without even trying to work on it. Often, however, with just a little effort you can solve such problems. An author wouldn’t put an equation in a book if it were beyond most readers. A surprising number of problems are solvable with a little brainwork. Don’t immediately think that you can’t solve a problem. Set an alarm for 10 minutes and give it a try.
• Give yourself a few loopholes. Dieters, for example, will often say, “I can’t have any sweets.” Then when they have a doughnut for breakfast, they see themselves failures and give up on the diet. Without an occasional loophole, a single incident can destroy your entire program of commitment. This dieters’ wisdom is transferable to the workplace as well. It is important to make safety valves that exact a price for disobedience, but that also permit the occasional mistake. It is equally important to keep exceptions exceptional.
• Be wary of your own good intentions. Many people believe that if they have good intentions, that is enough. They are wrong. Results are what matter. Suppose your child is sick. Which would you rather have, a doctor with the best of intentions, who ends up killing the child, or a greedy jerk who just wants the insurance money, but who cures your child? Measure by results rather than by intentions. Get feedback on your actions. Was the result as good as you intended?
• Adapt a problem-solving orientation. An important step in successful problem-solving is simply to engage the problem as a problem. A somewhat extreme example that illustrates the point is that Nobel Prize winning physicist Richard Feynman used to go to bars, but could never pick up a woman. He said to himself: “This is a problem. Engage problem-solving mode.” So he interviewed ‘experts,’ men who seemed to have no problem meeting women in bars. He learned their secrets and had no problem picking up women in bars.
• Think, then react. A common cause of self-defeating behavior is for people to react to a situation before they fully understand it. The end up voting against things they would vote for, sabotaging their own self interest, and working against their own goals. Make sure you understand what you are reacting to before you react.
Treat the Symptom
There are a surprising number of problems that we can solve by not seeking the deeper cause, but by simply treating the symptom. Take procrastination, for example. In some sense you may be putting off doing something because of some Freudian conflict with your parents, but this can be made irrelevant. Figure out not why you procrastinate, but how. Keep a list: rearrange office supplies, clean the house, surf the internet, so on. Then when you catch yourself doing one of these activities stop and get back to work. That’s it.
Similarly, while you are working, if you find yourself distracted by other things you need to remember or do, write them down in a list. Often, writing them down will purge them temporarily and allow you to focus on what is at hand. Write it and forget it, at least for the moment.
Finally, while poet T.S. Eliot said that we are distracted from distraction by distraction, management guru Peter Drucker said that focus is the key to success. A simple trick to getting back on task once distracted is to take a moment to leave a marker. You are reading something. The phone rings. Place a sticky note next to where you were.
Ease the Load
While it is true that there are many tricks for improving memory, it is also true that there are many ways to avoid needing to rely on your memory.
• Leave written reminders for yourself in places that you pass throughout the day. A sticky note on your desk phone could help you remember to call your child’s doctor. A piece of tape on your watch with a note saying, “Mom” could help you remember to send Mother’s Day flowers. A large note on top of your briefcase could remind you to stop in the mailroom on your way out of work. Take advantage of your own established routines to leave yourself reminders.
• Use a timer with an alarm to remind you of the important things you need to do during the day, such as to make your conference call, finish the laundry, or leave the office in time to make a meeting across town. In the meantime, you will not be preoccupied with checking the clock every couple of minutes – you need only to wait for the alarm.
• When you have a good idea seize the moment and remind yourself. If you think of a good idea for work while watching a TV show at home over the weekend, call your extension and leave a message on your voice mail to help remind you of your insight. Or call your answering machine at home to leave reminders for yourself about things you need to do that evening. Don’t let your inspiration slip away. You will check your voicemail first thing in the morning anyway. Use available technology to remind yourself of brilliant ideas, your child’s soccer game, or just to take out the trash.
• A “memory pocket” is a specific place in your coat, bag, home or office in which ‘reminders to self’ are put. This is where bills that need to be paid, list of calls to make, or supplies to buy may be kept. Once you are accustomed to using this specified location as a place to put reminders, it will become habitual to check this place.
• Your greatest weapon in fighting absentmindedness is order. Create order in your life and reduce absentmindedness by using regular fixed places for all those things you waste time looking for. If you spend time needlessly looking for your car keys, decide once and for all on one place to rest them when you arrive home each day. Put them there consciously until it is just a reflex and you don’t have to think about it.
• Establish a productive work routine. I had a boring class in graduate school that had a huge reading load. I figured that I needed to read an article a day everyday or I’d not pass the class so I made a rule: No breakfast until I’ve read an article. I had some very late breakfasts, but I stuck to the rule and got an A in the class.
• The longer you wait to do something, the more likely you are to forget to do it so as much as possible, do a thing as soon as you think of it.
You can recognize things that you can’t recall. For example, one Easter morning in Kennesaw, Georgia the water pump on my old car gave out. While I was waiting in the auto repair shop a man came in and said, “I stayed in a hotel last night, but I can’t remember the name. It had a big yellow sign with red letters.” The repair guys gave him a blank stare so I said, “Look in the phone book.” Speaking slowly and louder, he repeated, “I can’t remember the name.” I said, “Recognition is stronger than recall.” He looked in the phone book, looked surprised, thanked me, and went to his hotel.
Mix It Up
When studying a variety of subjects or working on a variety of projects, it is more difficult to do similar things right after each other than dissimilar things. Huh? For example, don’t study English then your foreign language then math then science. Instead, study English, then math, then the foreign language, then science. Don’t work on a report, then a presentation, then the budget, then taxes. Reorganize them so that the sequence goes: words, numbers, words, numbers so that you maximize the differences between topics each time you move to the next one.
I often organize my work into a stack such that I counterbalance words and numbers, computer and paper, reading and phone. Then I set a countdown timer for ten minutes and work my way through the stack, forcing myself to spend at least at least ten minutes working on the unpleasant tasks. Importantly, the time doesn’t have an alarm so that if I am enjoying the work, I am not distracted when time runs out and can keep working.
Appreciate Your Fallibility
Notice how often people distrust their memories, but not their judgment. Psychologists have developed thousands of experiments that demonstrate just how poor we are at making judgments, judgments of any kind – moral, business, even perceptual. You can get people to misjudge the length of a one-inch line by as much as six inches if other people in the room say the line is longer.
So? So several things. First, keep track of your judgments so you can determine the things you are good at judging and the things you aren’t. Second, when you make a decision include ways to get feedback to determine how well the decision worked out. Third, decide an issue early. Then give your decision a time to rest and approach the issue from another angle to see if you come to the same conclusion. Forth, know that you could be wrong and be open to information that will show your fallibility. Although it is not fun to be wrong, it is much worse to persist in being wrong.
Finally, appreciating your fallibility is an important way to cultivate your judgment. And a cultivated judgment is a rare and precious thing indeed.
Watch Your Metaphors
Make yourself aware of underlying metaphors in your communication. Metaphors can be very useful when you use them for elaboration of a topic. For example, we often speak about verbal arguments in terms of war metaphors. (Your claims are indefensible. He attacked every weak point in my argument. He shot down all of my arguments. If you use that strategy, he’ll wipe you out.) Metaphors structure much of our thinking and communication. But the metaphors we use can also limit us in subtle ways. If you always think of arguments in terms of war, you may miss out on the benefits of thinking of the situation differently, perhaps in terms of a game, or a dance.
You can also turn this metaphor-speak to your advantage. When trying to join a new group you can use the same metaphors they use to better “speak their language.”
Test, Retest
People often study as subject until they can get 100% right on a test of their understanding of the subject. While this is a sensible approach, it turns out that about 10% of the correct answers is composed of guesswork, short-term memory, and information not fully learned. The best approach is to study until you get 100%. Then wait a day or two and test again. The second test is a much better measure of your grasp of the material.
Testing is important in another important way, in the sense of getting feedback. This can be as simple as pulling on the door you just locked to make sure it is truly locked to far larger issues. For example, Peter Drucker says that quality isn’t what you put into a thing. Quality is what somebody else gets out of it. Therefore, you can’t answer the question of whether your service is any good. Only your customers can. You don’t get to say whether you are a good leader. Your employees answer that.
Even more generally, good intentions alone are not enough. Get feedback to determine whether you are getting the right results.
Build a Mistake Hierarchy
Magicians provide an excellent example of a ‘mistake hierarchy.’ A good card magician knows that many tricks depend on luck and that luck is a fickle friend. So, you tell the audience you’re going to do a trick. Without telling them what kind of trick, you go for the one-in-a-thousand effect, attempting the most difficult one first. It almost never works, of course, so you glide into a second try, for tricks that work one-in-a-hundred times. When that fails, as it almost always does, slide into the third-level trick, which only works about one time in ten. If all else fails you go for the failsafe effect, which won’t wow the crowd out of their socks, but at least it’s a trick that works.
It is common for people to wish for something big: “I’ll win the lottery. If that doesn’t work, I’ll get promoted at work. If that doesn’t work, I’ll go back to school.” The problem with this approach is that the different plans are not aligned. Your plans should be more like a staged defense: If they breach the wall, we’ll fall back to the keep.
Go for something big and have a backup plan right behind it in case it fails and one behind that and one behind that…
Talk to Yourself
Talking to yourself has several benefits. First, it forces you to process information in a different way. Perhaps you have a picture in your head of what you mean; putting it into words can draw your attention to details that you otherwise might overlook.
Second, talking to yourself helps you to remember things. A simple, “I’m putting the keys on the table near the door,” can help you remember where your keys are. I recently found myself in one city with an airplane ticket home from another city. I found a friendly airline agent who helped me change tickets at not cost. While I was waiting I said to myself, “Her surname is So and So, but she doesn’t look like one. And her first name is the same as that woman’s.” The next day when I was to leave the airline said they wouldn’t honor my ticket, since it was from another city. I explained that Ms. So and So said… It was clear that if I had just said, “Some agent said…” that they wouldn’t have honored the ticket, but because I new the agent’s name, which I had memorized by accident, they honored the ticket.
Third, research on problem solving shows that if you talk out loud when working on a problem, particularly a complex problem, then you solve the problem more quickly. Japanese math classrooms, for example, are very noisy. All of the kids talk out loud while working. In comparison with their American counterparts, these kids score on average 25% higher.
If you can’t remember, try it doing it anyway
You have probably had the experience of not being able to tell somebody a phone number until you dialed it. Or perhaps you have given poor directions to a place you can easily drive to. This happens because we are able to remember procedures and tasks better than specific step-by-step information. The other side of the coin is that you shouldn’t think somebody doesn’t know how to do something, just because she can’t tell you how to do it. For example, a colleague might not be able to explain to you how to do something on the computer. If you have reason to believe that she knows procedurally, you might ask her to show you how she does it.
This explaining-doing gap has large implications in the workplace and in schools. Too often we don’t look at what people can actually do. Instead, we listen to their talk about the subject. I’ve seen tests in schools that favor those who don’t actually know how to do a thing, but who can talk their way through it and I have seen mechanics tests that ask for the words about how to repair cars, but don’t measure actual car repair. If you are assessing others, look at what they can do. If you are being assessed, show people what you can do.
Use Stealth Health
The principle is simple enough: Eat a variety of healthy foods, eat less junk, and exercise more. The question isn’t the principle. The question is How? I use Weber’s Law, which states that you can’t detect a difference in stimuli that is less than 10%. Have somebody lift a 50 and a 51 pound weight and they will have a hard time telling them apart. I use something more like a 1% difference, but I do so with wicked persistence. I begin by eating one, just one, more leaf of lettuce and one, and only one, less spoonful of ice cream. I take just one flight of stairs. When I have grown completely accustomed to this level of change, then I take the next baby step. When if I go nuts and eat a pint of chocolate chip? These things happen, but I know the difference between a blip and a trend. The pint of chocolate chip is a blip. The general trend is toward greater health. This approach has an added benefit in that I haven’t told everybody I’m on a health kick so when they see me down the pint of chocolate chip, I don’t feel embarrassed. I say to myself, tomorrow is another day and I’ll get back on track.
Learn Key Concepts
Efficiency: Getting things done right.
Effectiveness: Getting the right things done.
Capital intensive: Requiring lots of money to accomplish.
Labor intensive: Requiring lots of work to accomplish.
Quality: Not what you put into a thing; what somebody else gets out of it.
Emergency: A time to break the rules, as when you speed to get somebody to the hospital before he dies.
Sunk cost: Money or effort spent. It is to be ignored so that you don’t risk sending good money after bad. Instead focus on opportunity cost.
Opportunity cost: The next best thing you could have done with your time or money. That which you gave up by choosing what you chose.
Marginal analysis: How a small change in one thing can have a large effect in another, as when the difference between winning and losing is only a 0.001 seconds and the difference in payout is $100,000.
Intelligence: Learning from your mistakes.
Wisdom: Learning from the mistakes of others.
Use Your Attitude to Your Advantage
• Believe that you can. When confronted with a seemingly nasty problem or an apparently complex mathematical formula, people often give up without even trying to work on it. Often, however, with just a little effort you can solve such problems. An author wouldn’t put an equation in a book if it were beyond most readers. A surprising number of problems are solvable with a little brainwork. Don’t immediately think that you can’t solve a problem. Set an alarm for 10 minutes and give it a try.
• Give yourself a few loopholes. Dieters, for example, will often say, “I can’t have any sweets.” Then when they have a doughnut for breakfast, they see themselves failures and give up on the diet. Without an occasional loophole, a single incident can destroy your entire program of commitment. This dieters’ wisdom is transferable to the workplace as well. It is important to make safety valves that exact a price for disobedience, but that also permit the occasional mistake. It is equally important to keep exceptions exceptional.
• Be wary of your own good intentions. Many people believe that if they have good intentions, that is enough. They are wrong. Results are what matter. Suppose your child is sick. Which would you rather have, a doctor with the best of intentions, who ends up killing the child, or a greedy jerk who just wants the insurance money, but who cures your child? Measure by results rather than by intentions. Get feedback on your actions. Was the result as good as you intended?
• Adapt a problem-solving orientation. An important step in successful problem-solving is simply to engage the problem as a problem. A somewhat extreme example that illustrates the point is that Nobel Prize winning physicist Richard Feynman used to go to bars, but could never pick up a woman. He said to himself: “This is a problem. Engage problem-solving mode.” So he interviewed ‘experts,’ men who seemed to have no problem meeting women in bars. He learned their secrets and had no problem picking up women in bars.
• Think, then react. A common cause of self-defeating behavior is for people to react to a situation before they fully understand it. The end up voting against things they would vote for, sabotaging their own self interest, and working against their own goals. Make sure you understand what you are reacting to before you react.
Treat the Symptom
There are a surprising number of problems that we can solve by not seeking the deeper cause, but by simply treating the symptom. Take procrastination, for example. In some sense you may be putting off doing something because of some Freudian conflict with your parents, but this can be made irrelevant. Figure out not why you procrastinate, but how. Keep a list: rearrange office supplies, clean the house, surf the internet, so on. Then when you catch yourself doing one of these activities stop and get back to work. That’s it.
Similarly, while you are working, if you find yourself distracted by other things you need to remember or do, write them down in a list. Often, writing them down will purge them temporarily and allow you to focus on what is at hand. Write it and forget it, at least for the moment.
Finally, while poet T.S. Eliot said that we are distracted from distraction by distraction, management guru Peter Drucker said that focus is the key to success. A simple trick to getting back on task once distracted is to take a moment to leave a marker. You are reading something. The phone rings. Place a sticky note next to where you were.
Ease the Load
While it is true that there are many tricks for improving memory, it is also true that there are many ways to avoid needing to rely on your memory.
• Leave written reminders for yourself in places that you pass throughout the day. A sticky note on your desk phone could help you remember to call your child’s doctor. A piece of tape on your watch with a note saying, “Mom” could help you remember to send Mother’s Day flowers. A large note on top of your briefcase could remind you to stop in the mailroom on your way out of work. Take advantage of your own established routines to leave yourself reminders.
• Use a timer with an alarm to remind you of the important things you need to do during the day, such as to make your conference call, finish the laundry, or leave the office in time to make a meeting across town. In the meantime, you will not be preoccupied with checking the clock every couple of minutes – you need only to wait for the alarm.
• When you have a good idea seize the moment and remind yourself. If you think of a good idea for work while watching a TV show at home over the weekend, call your extension and leave a message on your voice mail to help remind you of your insight. Or call your answering machine at home to leave reminders for yourself about things you need to do that evening. Don’t let your inspiration slip away. You will check your voicemail first thing in the morning anyway. Use available technology to remind yourself of brilliant ideas, your child’s soccer game, or just to take out the trash.
• A “memory pocket” is a specific place in your coat, bag, home or office in which ‘reminders to self’ are put. This is where bills that need to be paid, list of calls to make, or supplies to buy may be kept. Once you are accustomed to using this specified location as a place to put reminders, it will become habitual to check this place.
• Your greatest weapon in fighting absentmindedness is order. Create order in your life and reduce absentmindedness by using regular fixed places for all those things you waste time looking for. If you spend time needlessly looking for your car keys, decide once and for all on one place to rest them when you arrive home each day. Put them there consciously until it is just a reflex and you don’t have to think about it.
• Establish a productive work routine. I had a boring class in graduate school that had a huge reading load. I figured that I needed to read an article a day everyday or I’d not pass the class so I made a rule: No breakfast until I’ve read an article. I had some very late breakfasts, but I stuck to the rule and got an A in the class.
• The longer you wait to do something, the more likely you are to forget to do it so as much as possible, do a thing as soon as you think of it.
The Week That Was
The Week That Was
Just by looking at the gains or losses for the week, one would notice that the major indices haven’t moved much. Dow Jones Industrial Average lost only 44 points, to close at 11,326, a drop of 0.39%; Nasdaq added 0.43 points (whew!) to close at 2310, or 0.02%; S&P 500 added 2.55 points, or 0.20%, to close at 1,260. The week wasn’t all lame, like these numbers suggested. The VIX – CBOE Volatility Index – had some mood swings this past week, especially Monday when it bounced wildly. Financials are again to blame for the volatility, but let’s not be partial here and add some other ingredients to the mix: the mixed economic data, mostly better-than-expected earnings reports, volatile crude prices, depressing news from the automakers and others.
Let’s list them one by one below:
• In another depressing story, General Motors has announced a $15.5 billion net loss for the second quarter. Reasons: diving auto sales, lease deals gone bad, massive restructuring costs.
• Wait, there is more bad news from automakers: Ford Motors sales were down 15%, and even Toyota’s sales declined 12%
• Crude-oil up and down week did not help – its price bounced as a response to geopolitical and demand concerns, ending at $125 per barrel on Friday, down 14.2% from its July 3 closing high. The investors will be better served focusing on big picture, and eliminate the daily noise from the markets.
• Unemployment rose at 5.7% for July, the highest level in four years, and the seventh straight month of job losses. Can you believe that many economists have expected worse? I guess I will see you all at the OCR this fall.
• U.S. is giving in to recession – the U.S. GDP grew just 1.9%, annualized, in Q2 08, versus expectations of 2.4% growth
• Happy Birthday, Credit Crisis! One year ago this time, we were entering the biggest credit crisis since the Great Depression. How young and naïve we were! Not that we’ve learned much today, as the banks predict more losses and the economists another 12-18 months of credit crisis delight.
• To end on a (slightly) happy note (“It’s that possible?” “Let’s see”) – The end may be near … I meant the bottom – Merrill Lynch is selling its CDO’s (collateralized debt obligations) with a notional value of $30.6 billion for $6.7 billion, or 22 cents on the dollar. If that’s not desperation, I don’t know what is. It also shows that the big banks are starting to give in (read “cave in”) and it will signal others following suit soon.
Buckle up everybody! Wild week coming up!
Other news:
• The crop of new babies born in the U.S. reached 4.3 million last year, matching the highs seen in 1957, the peak of the baby boom. For the last 5 years, the growth in births is 7.3%, the fastest since 1991. I guess the high cost of gas has its impact, forcing people to stay home more.
• All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20% or more since September. Last week Brazil became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco have avoided the bear so far.
Just by looking at the gains or losses for the week, one would notice that the major indices haven’t moved much. Dow Jones Industrial Average lost only 44 points, to close at 11,326, a drop of 0.39%; Nasdaq added 0.43 points (whew!) to close at 2310, or 0.02%; S&P 500 added 2.55 points, or 0.20%, to close at 1,260. The week wasn’t all lame, like these numbers suggested. The VIX – CBOE Volatility Index – had some mood swings this past week, especially Monday when it bounced wildly. Financials are again to blame for the volatility, but let’s not be partial here and add some other ingredients to the mix: the mixed economic data, mostly better-than-expected earnings reports, volatile crude prices, depressing news from the automakers and others.
Let’s list them one by one below:
• In another depressing story, General Motors has announced a $15.5 billion net loss for the second quarter. Reasons: diving auto sales, lease deals gone bad, massive restructuring costs.
• Wait, there is more bad news from automakers: Ford Motors sales were down 15%, and even Toyota’s sales declined 12%
• Crude-oil up and down week did not help – its price bounced as a response to geopolitical and demand concerns, ending at $125 per barrel on Friday, down 14.2% from its July 3 closing high. The investors will be better served focusing on big picture, and eliminate the daily noise from the markets.
• Unemployment rose at 5.7% for July, the highest level in four years, and the seventh straight month of job losses. Can you believe that many economists have expected worse? I guess I will see you all at the OCR this fall.
• U.S. is giving in to recession – the U.S. GDP grew just 1.9%, annualized, in Q2 08, versus expectations of 2.4% growth
• Happy Birthday, Credit Crisis! One year ago this time, we were entering the biggest credit crisis since the Great Depression. How young and naïve we were! Not that we’ve learned much today, as the banks predict more losses and the economists another 12-18 months of credit crisis delight.
• To end on a (slightly) happy note (“It’s that possible?” “Let’s see”) – The end may be near … I meant the bottom – Merrill Lynch is selling its CDO’s (collateralized debt obligations) with a notional value of $30.6 billion for $6.7 billion, or 22 cents on the dollar. If that’s not desperation, I don’t know what is. It also shows that the big banks are starting to give in (read “cave in”) and it will signal others following suit soon.
Buckle up everybody! Wild week coming up!
Other news:
• The crop of new babies born in the U.S. reached 4.3 million last year, matching the highs seen in 1957, the peak of the baby boom. For the last 5 years, the growth in births is 7.3%, the fastest since 1991. I guess the high cost of gas has its impact, forcing people to stay home more.
• All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20% or more since September. Last week Brazil became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco have avoided the bear so far.
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