Strengthening Character

January 16, 2012 Leave a Comment

A person’s character is tested under circumstances when there are time limitations, when they are on the receiving end of scrutiny from others, and when they are completely ignored by the outside world. These scenarios evoke a passion that can be negatively or positively viewed by people that the person is in contact with. A person with an elevated level of character is able to practice patience, perseverance, and respect given any stressed circumstance.

Under time limitations and stress-induced dramatic events, a person with character is able to practice patience. Prioritizing and planning can only account for the presently seen, but cannot predict the unforeseen events that will inevitably happen. If there are competing events that require unequal levels of attention, conquer the most important and utilize multi-tasking skills to control the two events. Lose control of yourself and you lose control of everyone else around you. Being a leader implies having character to set a strong example and re-focus your peers.

One of the most damaging emotions to productivity is fear. The anxiety can come from criticism, a mental block, or an unknown path that can lead to failure. Being perseverant by having a strong faith creates opportunities to conquer anxiety. By never giving into fear, you are never susceptible to the harshness of criticism. Personal attacks on your character can cause a sense of bleakness. Don’t give into the temptation of discounting your self-worth. Character is strengthened by the ability to deflect the insignificant and honoring the value of the work that you are accomplishing.

Feeling ignored and lacking the platform to express ideas can cause discouragement. There is a burning desire to impact the world in the present moment, but it is sometimes better to wait. An inspiring message without a supporting stage is futile. Gain an understanding of the industry and seek experience at a lower level before trying to compete with people that have a podium. Craft your ideas secretly and never reveal your true motivations. Absorb every type of information by reading books, asking questions, and studying the lives of others that are in the position that you strive for. Garner the respect of those that have experience and your platform will slowly be built.

Bottom Line: Control your emotions and the emotions of those around you will be controlled. Character is like a muscle. With the practice of patience, perseverance, and respect, a person’s character is strengthened.

 

Filed under Strategy

Business Model Strategy

December 27, 2011 Leave a Comment

Businesses have evolved since the Internet has created an environment that connects businesses with consumers across the world. In past history, mom and pop stores were able to set up a business in a local community and mark-up goods and services. The good ole days are not amongst us and the business environment has changed.

With the upsurge in profitability of online retailers, local businesses are not able to survive. The extensive usage of the Internet has led the companies Craiglist, Amazon, and Google to capture a large amount of market share in their respective industries.

The alternative and highly successful business model is to cut costs ruthlessly and sell large amounts of quantity. Small and local stores are struggling to survive as the globalized companies have the ability to reach consumers without being limited to location. The term for selling products cheaply with an almost negligent marginal cost is known as deflationary economics. The shift to this type of business model is popular as consumers value cheap products that online companies have the resources to provide.

The best investment opportunities are with the companies that utilize the deflationary economics business model. In the future, watch for companies that are able to produce their products with costs that are below the average of competitors and are globally connected to their customers.

Filed under Strategy

Unconventional Approaches to Acquire Skills

December 25, 2011 1 Comment

Skill acquisition is frequently thought of as a difficult process that takes many hours of practice. This is true, but consists of one missing detail. Gaining skill involves a different type of practice. The type of practice required to master a skill effectively is known as deliberate practice. On his blog, Cal Newport profiled an accomplished piano player who described his unusual practice techniques. By using the strategies below he became more skilled than his peers with less practice time:

  • Strategy #1: Avoid Flow. Do What Does Not Come Easy.
    “The mistake most weak pianists make is playing, not practicing. If you walk into a music hall at a local university, you’ll hear people ‘playing’ by running through their pieces. This is a huge mistake. Strong pianists drill the most difficult parts of their music, rarely, if ever playing through their pieces in entirety.”
  • Strategy #2: To Master a Skill, Master Something Harder.
    “Strong pianists find clever ways to ‘complicate’ the difficult parts of their music. If we have problem playing something with clarity, we complicate by playing the passage with alternating accent patterns. If we have problems with speed, we confound the rhythms.”
  • Strategy #3: Systematically Eliminate Weakness.
    “Strong pianists know our weaknesses and use them to create strength. I have sharp ears, but I am not as in touch with the physical component of piano playing. So, I practice on a mute keyboard.”
  • Strategy #4: Create Beauty, Don’t Avoid Ugliness.
    “Weak pianists make music a reactive task, not a creative task. They start, and react to their performance, fixing problems as they go along. Strong pianists, on the other hand, have an image of what a perfect performance should be like that includes all of the relevant senses. Before we sit down, we know what the piece needs to feel, sound, and even look like in excruciating detail. In performance, weak pianists try to reactively move away from mistakes, while strong pianists move towards a perfect mental image.”

The strategies can be applied to any area that requires a deep level of understanding to master a complicated subject. In Cal’s profile, he focused on an astute piano player who used deliberate practice to gain a master-status level of skill at the piano. Business owners, students, and any person with the desire to learn a challenging skill can implement deliberate practice fundamentals. The goal of deliberate practice is to work hard, but not necessarily long. The best learners are able to accomplish a skill without sacrificing an inordinate amount of time. By challenging and disrupting flow, the learning rate is able to exponentially increase.

In Malcolm Gladwell’s book Outliers, he makes the claim that to master a skill one needs 10,000 hours of practice. Most of histories greatest legends have been known to practice excessive lengths, but the truly amazing practiced differently. Kobe Bryant, Tom Brady, and Albert Pujols have the ability to dominate the sports that they play by individually outworking their opponents. They do this by applying deliberate practice techniques to master their respective sports.

Albert Pujols doesn’t stand in a batting cage and aimlessly swing all day. He studies film of his mechanics, seeks advice from his coaches, and relentlessly challenges himself to improve his muscle memory. By challenging the assumptions of his muscle memory, he is able to practice more efficiently and learn more about his game. In result, he is known as the best player in Major League Baseball despite leaving my beloved St. Louis Cardinals.

The rules of skill acquisition are not easily interpreted. Any person with the desire and will to learn a skill is capable. The truly amazing are able to efficiently and effectively learn a skill in a short amount of time. They are able to harness the deliberate practice strategies utilized and outlined by the piano player to become so amazing that they cannot be ignored.

Filed under Education

Thinking, Fast and Slow by Daniel Kahneman Book Review

December 19, 2011 1 Comment

The book Thinking, Fast and Slow by Daniel Kahneman is a complete and outstanding study of the relatively new field of Behavioral Economics. The book is divided into five parts that analyze human behavior and the two systems that work together to form our judgments. I have outlined Part 1 of the book and I highly recommend you read the other four parts.

Thinking, Fast and Slow

Daniel Kahneman is a recipient of the Nobel Prize in Economics and has been a pioneer for the relatively new field of Behavioral Economics. He makes the assertion that there are two systems of judgment and choice. System 1 is intuitive and automatic while System 2 is more effortful and analytical. When you are asked to solve 2 + 2, System 1 is able to involuntarily answer the question. When you are asked to fill out a tax form, System 2 is needed to focus the required attention on the laborious task. If System 1 has a conflict that cannot be resolved, System 2 is able to process the problem in more analytical detail. The relationship of the two systems is highly efficient and System 2 is able to take charge in situations when there is a lack of self-control.

System 2 is characterized as being lazy and not going the full distance to solve a difficult problem. There was an experiment that was conducted in which System 2 would be fully engaged. The task was named Add-1 and pupil dilation was measured to study whether pupils shrink when participants quit a problem. It was found that within the first 5 seconds, the pupil dilates but immediately shrinks when a participant gives up on a task. System 2 relies on immense attention and effort to produce the required mental effort to solve a difficult problem.

Self-control is a significant problem for System 1 and is magnified when System 2 is cognitively busy. While System 2 controls thoughts and behaviors, System 1 struggles with temptations and impatience. The researcher Walter Mischel exposed children to an Oreo dilemma. They were to remain in a room with a single cookie and a bell. If they waited for the researcher, the child would get two cookies. It was found that the children who were able to resist the temptation scored incredibly higher on intelligence tests. The kids who exhibited more self-control were found to be less likely to get in trouble later on in their lives. Their System 2 and reasoning skills were considerably stronger than the other kids.

Kahneman realized that System 1 could be manipulated and act in accordance to the surrounding environment. The priming effect causes individual’s System 1 to become biased. If a person is primed with thoughts of old age, they begin to start walking slowly. This is known as the “Florida effect”. Individuals who are money-primed become more individualistic and selfish when faced with an opportunity to help someone. The priming scenarios arise in System 1 and there is no conscious access to the actions of the mind.

Cognitive strain helps reject the wrongly based intuitive answer of System 1 by assembling System 2. It is possible that System 1 is biased in rating words that are presented more often a higher ranking than unfamiliar words. This can be related to mood and how System 1 can be influenced when we are unhappy. When we are in a happy mood, System 2 is disengaged and the intuitive and creative process is enacted. We are also less surprised the second time an event occurs than on the first.

Jumping to conclusions should only be done when the costs are low and the situation is familiar. System 1 is able to make a guess that is guided by experience. The uncertainty and doubt are left to System 2 to handle. The halo effect occurs when the first impression is given more weight. Kahneman gave an example of his grading method in which he was biased by the first essay that he graded of each student. He would compare the subsequent essays to the initial impression of the first. He used a commitment device to reduce his biases by hiding the first grade of the essay to make the process fair. What you see is all there is (WYSIATI) exhibits why jumping to conclusions on limited evidence can be dangerous.

The mental shotgun refers to computing more information that one wants or needs. The conflict is that the irrelevant answers can be a disruption to the actual real answers. System 1 has a tendency to find a related question that is easier and answer that one. This is known as substitution and combines with the mental shotgun to generate quick answers without getting help from the lazy System 2.

Part of thinking fast and thinking slow is the ability for System 1 to work in conjunction with System 2. This process must be efficient and create a system that combines the intuitive and automatic with the analytical and deliberate.

 

Filed under Books, Economics

Gold Prices Skyrocketing: Will the Bubble Burst?

August 20, 2011 Leave a Comment

Amid the worries of U.S. equities and government debt volatility, the price of gold in dollars per ounce has increased steadily. This can be a result of the instability that has impacted the global economic system. Historically, gold has been used as protection against inflation and an indicator of the precariousness in the dollar. With professional research, analysts are expecting gold prices to encounter a parabolic rise. There is an opportunity to position an investment portfolio to exploit the fragility of the U.S. market.

History of Rising Gold Prices

On August 15, 1971, forty years ago, President Nixon took the U.S. off the Gold Standard. By doing this, he was debasing the dollar and allowing the dollar to float and be free of direct government intervention. At the time, gold was priced at $35 an ounce in August 1971 and exponentially rose to $850 an ounce in January 1980.

The graph below shows the appreciation of gold over time after Nixon took the U.S. off the Gold Standard.

Investment in Gold

For the average investor, gold seems to be an interesting venture. When the economy is underperforming, gold is expected to be a perfect hedge for any portfolio. The problem is that gold is most likely overvalued at this time. An adjustment can occur that would wipe out all gold price appreciation. This “hedge” could be dangerous.

Why would a person want to take on the risk to invest in gold? Analysts have explained this recent phenomenon.

“Lack of confidence in the global economy is pushing people towards gold,” Tom Pawlicki, a Chicago-based analyst at MF Global Holdings Ltd., said in a telephone interview. “Gold will continue to advance unless leaders are able to resolve the European or U.S. debt crisis.”

The apparent riskiness of gold is not apparent enough when gold prices are rising and U.S. equities are falling.

Future Expectations for Gold

Gold analysts have predicted that the price of gold could reach a staggering amount of $2,500 an ounce if the global economy continues to worsen. I would not trust an analyst to determine whether I should invest in a prospective venture. There is a possibility of  price fluctuations and I look forward to see how gold prices advance or retreat in the future.

Filed under Economics

Learning History from Biographies

July 21, 2011 Leave a Comment

One of my toughest subjects in school was always history. I relentlessly struggled to remember the important names and dates that were tested. Studying history by memorizing can be difficult and devastating to the learning process. In result, I decided to embark on a self-learning sabbatical that eliminated traditional history classes and textbooks. I picked a mode of instruction by reading biographies of outstanding men that changed the United States forever. Three biographies broadened my knowledge and helped shape my views of United States history over the past century.

Truman by David McCullough

The first biography that I read profiled President Harry S. Truman’s life as a Democratic leader from Missouri. I wrote a book review that analyzed the impact that Truman made on the United States.

From a historical standpoint, McCullough starts the story of Truman’s ancestors beginning on the Missouri frontier. He then plots the gruesome battle of War World I and advances to the intricacies of World War II. The decision of dropping the atomic bomb was the most impactful and in-depth part of the biography. Truman was plagued with a decision that only a strong person could handle. The factors were weighed and he was forced to make a decision.

Global and political policies were expressed when the meetings of Potsdam were revealed in immense detail. Stalin and Churchill were described in a way that expressed each of their powerful personalities.

The decision of sending troops to Korea, and the firing of General McArthur caused Truman to consider the implications of being a president and facing public sentiments. In order to be President of the United States, Truman proved that it takes courage, risks, and a willingness to stand by the decisions that one makes.

From a historical standpoint, Truman had the opportunity to live through the decades that had the most progress for America. He was a leader of the United States and had the responsibility of conducting policy matters in a way that appeased other nations. He was a role model for all citizens and his biography was fantastic for learning United States history from inside of the system. In order to understand this period of history from both sides, an alternate view must be presented. In the next book that I read, the financial history of the United States was revealed. Seeing the finance world through Warren Buffett provided a unique perspective of history.

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

Warren Buffett is more knowledgeable about the United States financial system than possibly any other person. In this biography, Schroeder takes the reader through the transition of Buffett from his modest beginnings to his billionaire status.

The most striking aspect of Buffett is that he is frugal his entire life and does not burn cash. He keeps his modest values that he learned on a small farm in Omaha, Nebraska.

Buffett is an investment genius that is able to see trends in companies that no one else can. He developed the skill of finding undervalued investments by hard and dedicated research. There was not a time when he was not constantly taking in information—whether it was reading the newspaper, watching the news, or savaging through financial reports.

The biography provided a financial history of the United States that the biography Truman did not touch on. Buffett’s biography complimented Truman perfectly because the same issues were being discussed in both books. Buffett had an alternate view of Truman and probably disliked him as a President.

Understanding both sides of events from two different viewpoints is important for learning about the people who lived before us. Now, to sum up the self-directed history learning, I picked up a biography that featured a controversial war veteran and scientific genius of airplane design.

Boyd: The Fighter Pilot Who Changed the Art of War by Robert Coram

Colonel John Boyd was a fighter pilot in the Air Force and questioned the status quo to the day that he died. He was highly controversial and was not afraid to emphasize and speak the truth. The Air Force is a highly structured bureaucratic system that forced Boyd to break down the barriers of traditional practices.

Nicknamed forty-second Boyd, there was not a person alive that was able to set their target on Boyd and hose him. He had a bet that if any person was able to set their sights on him and yell Guns! Guns! Guns!, he would give the fighter pilot forty bucks. There was never a person that was able to hose forty-second Boyd.

Not only was Boyd a cocky, flamboyant fighter pilot, he was extremely smart. The most significant achievements were the creation of the F-15 and F-16 fighter pilots for the Air Force. It was almost an impossible task to go against the grain and design aircrafts that went against everything that the Air Force believed.

The confident and rebellious nature of Boyd was exacerbated when the intellectual portion of his life emerged. He stopped flying fighter jets and went into a sabbatical of learning. During this time, he developed an Energy Maneuverability Theory that was briefed to members of the armed forces. Boyd did not stop there as he researched a new theory and named it Destruction and Creation. The paper analyzes how the creative process evolves and how mental models are used.

The biography provided an account of history from the vantage point of a person who worked and lived in the system. Boyd had to develop his theories in secrecy and had to make sure his ideas were one hundred percent accurate. If anything were wrong with one of his theories, his credibility would be deflated.

Colonel John Boyd was a strong and defiant person and there was not a person that could stand in his way of presenting the truth. The military strategy that he developed was profound and provided an inside view of the intentions of the Air Force and Marines in prior wars. The biography provided me with the most information and inside knowledge. It was interesting to learn how the armed forces are structured and the process that must be completed to change a military strategy.

What’s Next?

After reading these biographies, I was provided with an education that cannot be duplicated by reading textbooks. There weren’t any facts and figures that I forced myself to memorize. I read for comprehension and with the intention of understanding how the three men progressed through their lives.

The next biography that I will read will most likely be Benjamin Franklin: An American Life by Walter Isaacson. I will explore the earlier history of America through the eyes of the person who invented bifocal glasses.

Filed under Books

The Most Highly Abused Statistic

July 12, 2011 Leave a Comment

Advertisers and companies that sell products try to convince their prospective customers that a product or service is better than it actually is. In order to do this, the brand managers use appealing statistics to sway the opinions of their customers. The most evasive statistic measures the average of a group. The average can be used to represent mediocrity. The problem is that the average can be severely skewed without the customer ever knowing.

For instance, consider a real estate agent that is trying to sell a house to a couple who just moved into town. The agent will claim that the average income of a family that lives in the neighborhood is $150,000. The couple builds an impression of the neighborhood based on a statistic that is completely wrong.

The real estate agent computed the average by adding up family incomes in the neighborhood and dividing by the number of families. The statistic seems harmless at the beginning, but changes once the data is analyzed more closely.

The family incomes have a high variability and are not consistent within the neighborhood. Suppose that there are five families out of twenty-five that earn $500,000. The five family incomes significantly skew the average and hold up the families that make less than $150,000. After the five high family incomes are taken out of the group, the average is only around $62,500.

The real estate agent tries to use prestige to lure the purchasers into buying a house in a neighborhood that is not depicted in the correct way. A more appropriate statistic to convey the actual representation of family income in a neighborhood is the median. To calculate the median, the family incomes are listed from lowest to highest. The family income that is in the middle is the median. This eliminates the risk of outliers and provides an accurate portrayal of family incomes in the neighborhood.

Family incomes are not the only group of data that is skewed to eliminate the reliability of the average statistic. Prices of goods in a basket, height, and wealth are all susceptible to having outliers that impact the average. To further your knowledge and lessen your risk of being deceived by statistics, I recommend reading How to Lie with Statistics"" by Darrell Huff. He provides excellent examples of bias, misleading graphs, and ways advertisers massage numbers. Statistics are a powerful tool that can be used dubiously with a little bit of creativity.

Filed under Statistics

Investment Return of a College Education

July 4, 2011 1 Comment

I am a firm believer in the statistics that support the claim that obtaining a college degree increases a person’s lifetime earning potential. From that perspective, one would think that every person is better off going to college. That cannot be a viable claim because everyone is not suited or does not want to attend college.

I don’t believe that every person should go to college. People have different career goals and not all people have the same ambitions. Also, going into an immense amount of debt to attend college is probably not a wise choice in this economy.

If a person wants to go to college, does not have to go into significant debt, and wants to financially improve their lives, college can provide a great return on investment. From a pure investment standpoint, a college education may be the best and least risky investment a young person can make. Lets look at the numbers. A writer for the New York Times, David Leonhardt comments on the returns of education by commenting:

The Hamilton Project, a research group in Washington, has just finished a comparison of college with other investments. It found that college tuition in recent decades has delivered an inflation-adjusted annual return of more than 15 percent. For stocks, the historical return is 7 percent. For real estate, it’s less than 1 percent.

The statistical research by the group highlights that education may be the best investment in the current market. Not only do you get the experience of learning new concepts, but also your money works for you while you get to experience college.

Equity investments are risky and can drain excess cash reserves in a matter of months. If you are looking for the best investment for your cash, invest in yourself with an education and your lifetime earnings will pay dividends.

Filed under Education

Applied Comparative Advantage

July 2, 2011 1 Comment

In courses of Introduction to Economics across the country, a term known as comparative advantage is usually covered. David Ricardo first applied it as he used it to define trade between two countries. If two countries can produce the same good, but one can produce it at a lower relative cost, the fortunate country would benefit by focusing on that good and trading the surplus.

Comparative advantage can be useful for teamwork when analyzing group dynamics. When forming a team of any kind, it can be beneficial to have a wide range of specialists that are great at what they do. With each person having a different circle of competence, the overall group can achieve more in a shorter period of time. If a team consists of members who have the same area of expertise, the group member’s skills may overlap. Inefficiency would occur that would plague the team when working together on difficult problems. By having a broad spectrum of experts from different fields, comparative advantage will offer the greatest probability that problems will be solved swiftly.

After considering the positive benefits of creating a distinct group, here are a few questions that can be contemplated:

  • What actions can I take to become the best in one area of proficiency?
  • How can I work with a homogenous team that employee the same strengths and weaknesses?
  • Is it best to concentrate on improving old skills or learning new and unique ones?

Filed under Economics

The Changing Environment of Small Business Owners

June 29, 2011 Leave a Comment

As the global diversity of business reaches a newfound height, small businesses with physical locations are noticing a change in the economic environment. The small business owners that sell their products exclusively at their stores are observing that their much larger competitors can lower prices and outsell them. The corporations that strike the small towns have shareholders to please and will do anything to derive as much revenue possible.

Seth Godin, one of my favorite bloggers/authors,commented on local businesses that must compete with large corporations:

Real estate is the soul killer here. You can’t have a beloved local market and a public drugstore chain occupying the very same spot. Pundits like me can talk all we want about being remarkable, about leading and about making connections, but when a public company wants your spot, when it can extract a few extra pennies per square foot, you lose.

He makes a fascinating point that large corporations are able to buy up real estate and force out small business owners. He goes on to exclaim:

The Internet has opened the door for millions of businesses to do things differently, because there are other assets now, assets that can transcend location. Your permission to talk to customers, your reputation, your unique products–you can build a business around them online. But that doesn’t work so well if you depend on local (and leased) real estate, if you’re selling watercress or radishes, apparently.

In response to this problem, businesses must differentiate their products from the status quo. If a product can be sold at Walgreens, Wal-Mart, or Target, there is not a suitable way to sustain a competitive advantage. This can be viewed positively because innovators will be called upon to create meaningful products that have never been created.

The Internet has made it incredibly easy for businesses to sell their products on the Internet at a greater quantity to any person across the world. The Internet will become more important than ever because the long tail will become utilized. Public corporations may ignore the market and cause small business owners to recuperate from the takeover of real estate seeking corporations.

Consumers will become fed up with the continued collaboration to push out small businesses. The future is dependent on the truly amazing and remarkable. Seth Godin has unveiled the issue and shot out the warning flair. Now as entrepreneurs, we must drastically change the way we do business and create meaningful products that change lives. Corporations, in response, will struggle to replicate the earth shattering innovation.

Filed under Entrepreneurship

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