A forum for Hawaii's
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Mistaking the odds:
How the media can
impair judgment
Scary news stories can distract you from
sticking with a good investment program
IN January 2001, CNN reported that after seven cows born and raised in Germany were diagnosed with mad cow disease. Within six weeks, beef consumption in Germany had dropped in half.
Bear in mind that only 150 deaths have been attributed to Mad Cow disease since its discovery in the '80s.
In contrast, the U.S. Centers for Disease Control and Prevention estimates that salmonella poisoning kills 600 people in the U.S. every year and makes an additional 1.4 million Americans sick. And yet, the popularity of chicken, the main source of salmonella, continues to increase.
To explain this discrepancy in behavior requires that we understand how we process new information. We give the most weight to our own personal experiences, then to experiences relayed to us by our friends, then to media reporting, and in last place, to statistical facts. So while most of us have had enough experience with food poisoning to put the salmonella statistics in context, mad cow disease, being an unknown, takes on a larger-than-life risk when the media describes the gruesome details of those who get sick.
In other words, for areas in which we don't have significant personal experience, stories in the media can greatly bias our perceptions of an event's likelihood.
For example, for the last few years, most pundits have been saying, "Don't invest in medium- or long-term bonds because long-term interest rates are going up." They gave their reasons, and if you watched or read the financial press regularly, you quickly became convinced that it must be true.
The facts say otherwise.
The facts say that long-term interest rates today already reflect our best guess of what they will be tomorrow. So, as unintuitive as it seems, they are just as likely to go down as they are to go up. And, in fact, those who waited for rates to go up are still waiting.
To improve your financial health, stop checking your portfolio's value every day and stop watching and reading the financial news on a regular basis. Once you have built a sound investment strategy, changes should only occur when your goals and needs change. Reading the financial news just motivates you to make unnecessary changes that are often mistakes.
THE OTHER AREA where our odds-making ability is impaired is when many pieces are involved.
For example, if you were in a room with 22 other people, what do you think the odds of two of you having the same birthday would be (i.e., same month and day). If you are like most people, you would have guessed a 10 percent chance or less when, in fact, the odds are just over 50 percent (really, they are).
This poor ability at odds-making when many pieces are involved makes it difficult for people to accurately judge when success is due to chance or expertise.
For example, when evaluating mutual funds, a performance history of better-than-average returns for each of the last five years would lead most people to infer the fund manager has some investment expertise.
However, random chance suggests that around 3 percent of mutual funds should have this kind of track record. Since there are more than 10,000 mutual funds, random chance says there could be more than 300 funds with this track record without any need for skill-based explanations. And, in fact, when you look at fund histories, even fewer than 3 percent of all funds beat their benchmark index five years in a row.
To further muddy the waters, the investment industry creates thousands of new funds every year, killing off the ones that perform poorly. Since the performance numbers of the failed funds are erased, the illusion of skill is enhanced.
When you add to this that studies have shown virtually no predictive power of how a mutual fund will do in the future based on its history, you understand why every prospectus includes the words "past performance does not guarantee future results."
What can you do?
Unfortunately, calculating odds with many pieces is HARD. Even those with lots of math smarts often get them wrong.
But to get a better feeling for all the different ways we mislead ourselves, I recommend reading Nicholas Taleb's book, "Fooled by Randomness."
To improve your financial heath, stop trying to find the outperforming funds. Instead, focus on taking the appropriate risk for your needs, ensure your portfolio is well diversified, stop chasing returns and use low-expense, passive funds to capture economic growth.
of Pathfinder Financial Services, a fee-only financial planning firm.
Reach him through his Web site at www.pathfinderfs.com or call 728-4396.
[ ON TECHNOLOGY ]
The art of picking
a laptop
It seems not a week goes by that we are asked "what's the best laptop computer out there nowadays?" Sure, we can spout off with a slick answer involving the use of "best practices" to "assess your requirements" and get your "best value." But of course, the real question is "who makes reliable computers that are cheap?" The truth of the matter is that no matter how many different criteria come into play, first and foremost is cost.
With that in mind, we reviewed a couple of laptops from two of the major vendors out there.
To start, we looked at the IBM Thinkpad R51, model 1830-G7U. Retail price is $1,849.00, while the lowest "street" price we could find was around $1,800. Note that this pricing is for the laptop only and doesn't include a docking station, carrying case or any other extras you might like.
The technical specifications included all the standard stuff for laptops these days (see sidebar).
First impression - this keyboard is cool. For lack of a better explanation, the best we can say is it feels...solid. Kind of like in Jurassic Park, "Is it heavy? That means it's expensive." Although IBM has a technical explanation for it, the fact is they've done a good job of making the keyboard feel heavy.
Another interesting thing about the IBM keyboard is that there is no "Windows" key. You know, the one with the wavy Windows logo on it that brings up the "Start" menu? It's nowhere to be found. IBM explains "(we) have opted to retain the traditional full sized keyboard layout with full sized keys in a 7 row format. In lieu of substituting a Windows key and/or switching around the placement, or consolidation of the traditional keyboard layout, standard key spacing has been retained for maximum end user comfort." IBM goes on to add that a key-remapping utility is available if you really want Windows key functionality.
We have to agree that a full size keyboard is certainly a desirable feature. Of course, conspiracy theorists out there have other reasons for the lack of a Windows key. After all, last time we checked, a cool Linux logo has yet to be created.
Another nifty feature of this laptop is IBM's proprietary Active Protection System (APS). This thing is pretty slick. It continuously monitors the movement of the laptop and temporarily stops the hard drive when unexpected movement is detected. There is even a graphical display that shows you what position the laptop is in, whether it is flat on your desk, or being swung through the air by an upset customer. Since this laptop was on loan from IBM, we didn't test this feature too drastically.
Other than that, there's nothing much else exciting about this machine - which is a good thing. It's what you want in a reliable, business-class computer and is plenty fast enough for the ordinary user. This particular model's display resolution maxes out at 1024x768, which is good enough for most folks on a 14" screen. Lately, we've seen a lot of laptops with these specifications - this helps to keep weight and power requirements down. External monitors are supported up to 2048x1536.
Although it weighs in at a relatively average 5.7 pounds (verified by the ISDI men's room scale), it feels light. Any road warrior (or is it road rainbow?) will confirm that even half a pound makes a big difference when schlepping gear around the country.
The second laptop we looked at was the Hewlett Packard Compaq Business Notebook nc6000. This particular model, DP894A (also affectionately known as the Cnc6000QP160X440WGn51Pe - really), retails for $1,899, with a price of around $1,800. Again, this is for the basic laptop only. We added an optional HP W500 wireless network card, which adds another $80 to the street price.
The technical specifications are strikingly similar to the IBM R51 (see sidebar), the primary difference being that the HP has 512mb of RAM while the IBM only has 256mb. Of course, the HP is not equipped with IBM's proprietary APS.
The HP weighs in at 5.07 lbs (again verified by the ISDI men's room scale). As we've mentioned, every half pound makes a difference. With the HP, this is no exception. This is one of the lightest "standard" business class laptops we've seen. Sure, there are other models that may be lighter, but not with a 14" display. Another trick used by various vendors (including HP and IBM) is to lighten their load is by "externalizing" components such as a CD/DVD drive. Of course, the external device(s) are not counted when tallying up the total weight. More often than not, you're going to take these devices with you when you travel anyway, and you're just asking for trouble by running your laptop with the devices sometimes in and sometimes out.
Like the R51, the nc6000 is marketed as a reliable business class computer. It should be more than fast enough for the ordinary user. Its built-in display, like the R51, is limited to 1024x768, external monitors are supported up to 1600x1200.
The nc6000 has a Windows key, and, while its keyboard is not as impressive as the IBM's, it is full width and large enough for even the fattest of fingers. This model also has 3 programmable "Quick Launch Buttons" which automatically start programs or processes.
Both the IBM and the HP come with a 3-year parts and labor warranty from 2 of the most reputable organizations in the industry.
So which one do we recommend? The solid keyboard and APS of the IBM give it an edge over the HP, but the fact of the matter is that you really can't go wrong with either.
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a Honolulu-based IT consultancy, specializing in software
development, systems integration, and outsourcing. He can be
reached at jagsalud@isdi-hi.com or by calling 944-8742.
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